IDEAS home Printed from https://ideas.repec.org/a/kap/rqfnac/v47y2016i1d10.1007_s11156-015-0498-0.html
   My bibliography  Save this article

The impact of state ownership, formal institutions and resource seeking on acquirers’ returns of Chinese M&A

Author

Listed:
  • Min Du

    (Leeds Beckett University)

  • Agyenim Boateng

    (Glasgow Caledonian University)

  • David Newton

    (University of Nottingham)

Abstract

We examine the effects of state ownership, institutions and resource-seeking behavior on post-acquisition stock price returns of Chinese cross-border mergers and acquisitions over the period 1998–2008. Chinese acquiring firms experience negative returns ranging from 2.92 to 10.80 % in 12- and 60-month post-event periods, respectively. State ownership (SOE), interaction between R&D and SOE, formal institutional distance and acquirer size have a positive and significant impact on the long-term acquirer returns. However, the interaction between tangible resources and SOE and acquirer cash holdings appears to have a negative and significant impact on long-term returns. Overall, our results suggest that the state and institutions constitute important sources of long-term value creation for Chinese acquirers.

Suggested Citation

  • Min Du & Agyenim Boateng & David Newton, 2016. "The impact of state ownership, formal institutions and resource seeking on acquirers’ returns of Chinese M&A," Review of Quantitative Finance and Accounting, Springer, vol. 47(1), pages 159-178, July.
    • Handle: RePEc:kap:rqfnac:v:47:y:2016:i:1:d:10.1007_s11156-015-0498-0
    DOI: 10.1007/s11156-015-0498-0
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11156-015-0498-0
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11156-015-0498-0?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Mitchell, Mark L & Stafford, Erik, 2000. "Managerial Decisions and Long-Term Stock Price Performance," The Journal of Business, University of Chicago Press, vol. 73(3), pages 287-329, July.
    2. Lau, Chung-Ming & Fan, Dennis K.K. & Young, Michael N. & Wu, Shukun, 2007. "Corporate governance effectiveness during institutional transition," International Business Review, Elsevier, vol. 16(4), pages 425-448, August.
    3. Roll, Richard, 1986. "The Hubris Hypothesis of Corporate Takeovers," The Journal of Business, University of Chicago Press, vol. 59(2), pages 197-216, April.
    4. Morck, Randall & Shleifer, Andrei & Vishny, Robert W, 1990. "Do Managerial Objectives Drive Bad Acquisitions?," Journal of Finance, American Finance Association, vol. 45(1), pages 31-48, March.
    5. Yuan Chen & Michael Young, 2010. "Cross-border mergers and acquisitions by Chinese listed companies: A principal–principal perspective," Asia Pacific Journal of Management, Springer, vol. 27(3), pages 523-539, September.
    6. Boycko, Maxim & Shleifer, Andrei & Vishny, Robert W, 1996. "A Theory of Privatisation," Economic Journal, Royal Economic Society, vol. 106(435), pages 309-319, March.
    7. Malmendier, Ulrike & Tate, Geoffrey, 2008. "Who makes acquisitions? CEO overconfidence and the market's reaction," Journal of Financial Economics, Elsevier, vol. 89(1), pages 20-43, July.
    8. Poncet, Sandra & Steingress, Walter & Vandenbussche, Hylke, 2010. "Financial constraints in China: Firm-level evidence," China Economic Review, Elsevier, vol. 21(3), pages 411-422, September.
    9. Doukas, John & Travlos, Nickolaos G, 1988. " The Effect of Corporate Multinationalism on Shareholders' Wealth: Evidence from International Acquisitions," Journal of Finance, American Finance Association, vol. 43(5), pages 1161-1175, December.
    10. Barber, Brad M. & Lyon, John D., 1997. "Detecting long-run abnormal stock returns: The empirical power and specification of test statistics," Journal of Financial Economics, Elsevier, vol. 43(3), pages 341-372, March.
    11. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    12. Brav, Alon & Gompers, Paul A, 1997. "Myth or Reality? The Long-Run Underperformance of Initial Public Offerings: Evidence from Venture and Nonventure Capital-Backed Companies," Journal of Finance, American Finance Association, vol. 52(5), pages 1791-1821, December.
    13. Chen, Gongmeng & Firth, Michael & Xu, Liping, 2009. "Does the type of ownership control matter? Evidence from China's listed companies," Journal of Banking & Finance, Elsevier, vol. 33(1), pages 171-181, January.
    14. Agyenim Boateng & XiaoGang Bi, 2014. "Acquirer Characteristics and Method of Payment: Evidence from Chinese Mergers and Acquisitions," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 35(8), pages 540-554, December.
    15. Deng, Ping, 2009. "Why do Chinese firms tend to acquire strategic assets in international expansion?," Journal of World Business, Elsevier, vol. 44(1), pages 74-84, January.
    16. Paul H. Malatesta & Kathryn L. DeWenter, 2001. "State-Owned and Privately Owned Firms: An Empirical Analysis of Profitability, Leverage, and Labor Intensity," American Economic Review, American Economic Association, vol. 91(1), pages 320-334, March.
    17. Megginson, William L & Nash, Robert C & van Randenborgh, Matthias, 1994. "The Financial and Operating Performance of Newly Privatized Firms: An International Empirical Analysis," Journal of Finance, American Finance Association, vol. 49(2), pages 403-452, June.
    18. Jarrad Harford, 1999. "Corporate Cash Reserves and Acquisitions," Journal of Finance, American Finance Association, vol. 54(6), pages 1969-1997, December.
    19. Calomiris, Charles W. & Fisman, Raymond & Wang, Yongxiang, 2010. "Profiting from government stakes in a command economy: Evidence from Chinese asset sales," Journal of Financial Economics, Elsevier, vol. 96(3), pages 399-412, June.
    20. Kiymaz, Halil, 2004. "Cross-border acquisitions of US financial institutions: Impact of macroeconomic factors," Journal of Banking & Finance, Elsevier, vol. 28(6), pages 1413-1439, June.
    21. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    22. John D. Lyon & Brad M. Barber & Chih‐Ling Tsai, 1999. "Improved Methods for Tests of Long‐Run Abnormal Stock Returns," Journal of Finance, American Finance Association, vol. 54(1), pages 165-201, February.
    23. Robert L. Conn & Andy Cosh & Paul M. Guest & Alan Hughes, 2005. "The Impact on UK Acquirers of Domestic, Cross-border, Public and Private Acquisitions," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(5-6), pages 815-870.
    24. Chhibber, Pradeep K & Majumdar, Sumit K, 1999. "Foreign Ownership and Profitability: Property Rights, Control, and the Performance of Firms in Indian Industry," Journal of Law and Economics, University of Chicago Press, vol. 42(1), pages 209-238, April.
    25. Eckbo, B Espen & Giammarino, Ronald M & Heinkel, Robert L, 1990. "Asymmetric Information and the Medium of Exchange in Takeovers: Theory and Tests," Review of Financial Studies, Society for Financial Studies, vol. 3(4), pages 651-675.
    26. Jun Du & Sourafel Girma, 2010. "Red Capitalists: Political Connections and Firm Performance in China," Kyklos, Wiley Blackwell, vol. 63(4), pages 530-545, November.
    27. Bhabra, Harjeet S. & Huang, Jiayin, 2013. "An empirical investigation of mergers and acquisitions by Chinese listed companies, 1997–2007," Journal of Multinational Financial Management, Elsevier, vol. 23(3), pages 186-207.
    28. Deng, Ping, 2004. "Outward investment by Chinese MNCs: Motivations and implications," Business Horizons, Elsevier, vol. 47(3), pages 8-16.
    29. Michael A. Hitt & David Ahlstrom & M. Tina Dacin & Edward Levitas & Lilia Svobodina, 2004. "The Institutional Effects on Strategic Alliance Partner Selection in Transition Economies: China vs. Russia," Organization Science, INFORMS, vol. 15(2), pages 173-185, April.
    30. Daphne W Yiu & ChungMing Lau & Garry D Bruton, 2007. "International venturing by emerging economy firms: the effects of firm capabilities, home country networks, and corporate entrepreneurship," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 38(4), pages 519-540, July.
    31. Robert L. Conn & Andy Cosh & Paul M. Guest & Alan Hughes, 2005. "The Impact on UK Acquirers of Domestic, Cross‐border, Public and Private Acquisitions," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(5‐6), pages 815-870, June.
    32. Gregor Andrade & Mark Mitchell & Erik Stafford, 2001. "New Evidence and Perspectives on Mergers," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 103-120, Spring.
    33. Chengqi Wang & Junjie Hong & Mario Kafouros & Mike Wright, 2012. "Exploring the role of government involvement in outward FDI from emerging economies," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 43(7), pages 655-676, September.
    34. Andrei Shleifer & Robert W. Vishny, 1994. "Politicians and Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(4), pages 995-1025.
    35. Loughran, Tim & Vijh, Anand M, 1997. "Do Long-Term Shareholders Benefit from Corporate Acquisitions?," Journal of Finance, American Finance Association, vol. 52(5), pages 1765-1790, December.
    36. Cull, Robert & Xu, Lixin Colin, 2003. "Who gets credit? The behavior of bureaucrats and state banks in allocating credit to Chinese state-owned enterprises," Journal of Development Economics, Elsevier, vol. 71(2), pages 533-559, August.
    37. Moeller, Sara B. & Schlingemann, Frederik P. & Stulz, Rene M., 2004. "Firm size and the gains from acquisitions," Journal of Financial Economics, Elsevier, vol. 73(2), pages 201-228, August.
    38. Sathyajit R Gubbi & Preet S Aulakh & Sougata Ray & M B Sarkar & Raveendra Chittoor, 2010. "Do international acquisitions by emerging-economy firms create shareholder value? The case of Indian firms," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 41(3), pages 397-418, April.
    39. Jeffrey Harrison & Matthew Hart & Derek Oler, 2014. "Leverage and acquisition performance," Review of Quantitative Finance and Accounting, Springer, vol. 43(3), pages 571-603, October.
    40. Christine M. Chan & Takehiko Isobe & Shige Makino, 2008. "Which country matters? Institutional development and foreign affiliate performance," Strategic Management Journal, Wiley Blackwell, vol. 29(11), pages 1179-1205, November.
    41. Lin Cui & Fuming Jiang, 2012. "State ownership effect on firms' FDI ownership decisions under institutional pressure: a study of Chinese outward-investing firms," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 43(3), pages 264-284, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tu, Wenjun & Zheng, Xiaolan & Li, Lei & Lin, Zhiang (John), 2021. "Do Chinese firms benefit from government ownership following cross-border acquisitions?," International Business Review, Elsevier, vol. 30(3).
    2. Frank O. Kwabi & Agyenim Boateng & Emmanuel Adegbite, 2019. "International equity portfolio investment and enforcement of insider trading laws: a cross-country analysis," Review of Quantitative Finance and Accounting, Springer, vol. 53(2), pages 327-349, August.
    3. Kwabi, Frank O. & Boateng, Agyenim & Du, Min, 2020. "Impact of central bank independence and transparency on international equity portfolio allocation: A cross-country analysis," International Review of Financial Analysis, Elsevier, vol. 69(C).
    4. Wai-Ming Fong & Kevin C. K. Lam & Pauline W. Y. Wong & Yiwei Yao, 2019. "Mergers & acquisitions and the acquirer-target cultural differences," Review of Quantitative Finance and Accounting, Springer, vol. 53(3), pages 633-661, October.
    5. Jian Cao & Kimberly M. Ellis & Mingxiang Li, 2019. "Inside the board room: the influence of nationality and cultural diversity on cross-border merger and acquisition outcomes," Review of Quantitative Finance and Accounting, Springer, vol. 53(4), pages 1031-1068, November.
    6. Jin-Young Jung & Wei Wang & Sung-Woo Cho, 2020. "The Role of Confucius Institutes and One Belt, One Road Initiatives on the Values of Cross-Border M&A: Empirical Evidence from China," Sustainability, MDPI, vol. 12(24), pages 1-20, December.
    7. Boateng, Agyenim & Du, Min & Bi, XiaoGang & Lodorfos, George, 2019. "Cultural distance and value creation of cross-border M&A: The moderating role of acquirer characteristics," International Review of Financial Analysis, Elsevier, vol. 63(C), pages 285-295.
    8. Dimitris Andriosopoulos & Leonidas G. Barbopoulos, 2017. "Relative equity market valuation conditions and acquirers’ gains," Review of Quantitative Finance and Accounting, Springer, vol. 49(3), pages 855-884, October.
    9. Kesen Zhang & Zhen Pan & Mukund Janardhanan, 2022. "Relationship between the Degree of Internationalization and Greenwashing of Environmental Responsibilities in China-Based on the Legitimacy Perspective," Sustainability, MDPI, vol. 14(5), pages 1-26, February.
    10. Songsheng Chen & Jun Guo & Qingqing Liu & Xiaoxiao Tong, 2021. "The impact of XBRL on real earnings management: unexpected consequences of the XBRL implementation in China," Review of Quantitative Finance and Accounting, Springer, vol. 56(2), pages 479-504, February.
    11. Xu, Jingjing & Huang, Haijie & Lee, Edward & Petaibanlue, Jirada, 2023. "Does goodwill pressure drive business restructuring based on subsidiary disposal?," International Review of Financial Analysis, Elsevier, vol. 86(C).
    12. Kintzinger, Paulina & Horky, Florian, 2022. "Dynamics and Developments of Chinese M&A Transactions in the wake of the BRI: A comparison of Germany and CEEC," MPRA Paper 112630, University Library of Munich, Germany.
    13. Li, Wanli & Wang, Chaohui & Ren, Qizhe & Zhao, Ding, 2020. "Institutional distance and cross-border M&A performance: A dynamic perspective," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 66(C).
    14. Boateng, Agyenim & Liu, Yang & Brahma, Sanjukta, 2019. "Politically connected boards, ownership structure and credit risk: Evidence from Chinese commercial banks," Research in International Business and Finance, Elsevier, vol. 47(C), pages 162-173.
    15. Narayan, Seema & Rehman, Mobeen Ur, 2021. "Can home-biased investors diversify interregionally in the long run?," Economic Modelling, Elsevier, vol. 97(C), pages 167-181.
    16. Agyenim Boateng & XiaoGang Bi & Sanjukta Brahma, 2017. "The impact of firm ownership, board monitoring on operating performance of Chinese mergers and acquisitions," Review of Quantitative Finance and Accounting, Springer, vol. 49(4), pages 925-948, November.
    17. Lanlan Liu & Dan Luo & Liang Han, 2019. "Default risk, state ownership and the cross-section of stock returns: evidence from China," Review of Quantitative Finance and Accounting, Springer, vol. 53(4), pages 933-966, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Du, Min & Boateng, Agyenim, 2015. "State ownership, institutional effects and value creation in cross-border mergers & acquisitions by Chinese firms," International Business Review, Elsevier, vol. 24(3), pages 430-442.
    2. Andrey Golubov & Dimitris Petmezas & Nickolaos G. Travlos, 2013. "Empirical mergers and acquisitions research: a review of methods, evidence and managerial implications," Chapters, in: Adrian R. Bell & Chris Brooks & Marcel Prokopczuk (ed.), Handbook of Research Methods and Applications in Empirical Finance, chapter 12, pages 287-313, Edward Elgar Publishing.
    3. Martynova, M. & Renneboog, L.D.R., 2005. "Takeover Waves : Triggers, Performance and Motives," Discussion Paper 2005-029, Tilburg University, Tilburg Law and Economic Center.
    4. Martynova, Marina & Renneboog, Luc, 2008. "A century of corporate takeovers: What have we learned and where do we stand?," Journal of Banking & Finance, Elsevier, vol. 32(10), pages 2148-2177, October.
    5. Renneboog, Luc & Vansteenkiste, Cara, 2019. "Failure and success in mergers and acquisitions," Journal of Corporate Finance, Elsevier, vol. 58(C), pages 650-699.
    6. Martynova, M., 2006. "The market for corporate control and corporate governance regulation in Europe," Other publications TiSEM 8651e281-4914-41f2-ac14-1, Tilburg University, School of Economics and Management.
    7. Bilei Zhou & Jie (Michael) Guo & Jun Hua & Angelos J. Doukas, 2015. "Does State Ownership Drive M&A Performance? Evidence from China," European Financial Management, European Financial Management Association, vol. 21(1), pages 79-105, January.
    8. Bruyland, Evy & Lasfer, Meziane & De Maeseneire, Wouter & Song, Wei, 2019. "The performance of acquisitions by high default risk bidders," Journal of Banking & Finance, Elsevier, vol. 101(C), pages 37-58.
    9. Malcolm Baker & Richard S. Ruback & Jeffrey Wurgler, 2004. "Behavioral Corporate Finance: A Survey," NBER Working Papers 10863, National Bureau of Economic Research, Inc.
    10. Renneboog, Luc & Vansteenkiste, Cara, 2019. "Failure and success in mergers and acquisitions," Other publications TiSEM 9baa3ffc-67cb-4647-9da5-a, Tilburg University, School of Economics and Management.
    11. Bhabra, Harjeet S. & Huang, Jiayin, 2013. "An empirical investigation of mergers and acquisitions by Chinese listed companies, 1997–2007," Journal of Multinational Financial Management, Elsevier, vol. 23(3), pages 186-207.
    12. Ahmed, Rizwan & Chen, Yawen & Benjasak, Chonlakan & Gregoriou, Andros & Nahar Falah Alrwashdeh, Nusiebeh & Than, Ei Thuzar, 2023. "The performance of bidding companies in merger and acquisition deals: An empirical study of domestic acquisitions in Hong Kong and Mainland China," The Quarterly Review of Economics and Finance, Elsevier, vol. 87(C), pages 168-180.
    13. Hong-Hai Ho & Thi-Hanh Vu & Ngoc-Tien Dao & Manh-Tung Ho & Quan-Hoang Vuong, 2019. "When the Poor Buy the Rich: New Evidence on Wealth Effects of Cross-Border Acquisitions," JRFM, MDPI, vol. 12(2), pages 1-15, June.
    14. Kanungo, Rama Prasad, 2021. "Uncertainty of M&As under asymmetric estimation," Journal of Business Research, Elsevier, vol. 122(C), pages 774-793.
    15. Ulrike Malmendier & Enrico Moretti & Florian Peters, 2011. "Winning by Losing: Evidence on Overbidding in Mergers," Tinbergen Institute Discussion Papers 11-101/2/DSF25, Tinbergen Institute.
    16. Tao, Fang & Liu, Xiaohui & Gao, Lan & Xia, Enjun, 2017. "Do cross-border mergers and acquisitions increase short-term market performance? The case of Chinese firms," International Business Review, Elsevier, vol. 26(1), pages 189-202.
    17. An, Suwei, 2023. "Essays on incentive contracts, M&As, and firm risk," Other publications TiSEM dd97d2f5-1c9d-47c5-ba62-f, Tilburg University, School of Economics and Management.
    18. Neelam Rani & Surendra S Yadav & P.K. Jain, 2015. "Impact of Mergers and Acquisitions on Shareholders’ Wealth in the Short Run: An Event Study Approach," Vikalpa: The Journal for Decision Makers, , vol. 40(3), pages 293-312, September.
    19. Jeffrey Harrison & Matthew Hart & Derek Oler, 2014. "Leverage and acquisition performance," Review of Quantitative Finance and Accounting, Springer, vol. 43(3), pages 571-603, October.
    20. Kai-Shi Chuang, 2018. "Glamour versus value, market timing and firm performance: evidence from mergers and acquisitions," Review of Quantitative Finance and Accounting, Springer, vol. 51(4), pages 967-1003, November.

    More about this item

    Keywords

    Long-term returns; State ownership; Institutions; Mergers & acquisitions;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:rqfnac:v:47:y:2016:i:1:d:10.1007_s11156-015-0498-0. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.