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Democratization in the host country and institutional risk of cross-border M&A: an empirical study on Chinese listed enterprises

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  • Feiqiong Chen

    ()

  • Yangmin Xu

    ()

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    Abstract

    We take the sample of Chinese listed enterprises’ cross-border M&A from 1999 to 2010 to construct a Poisson distribution model, and theoretically explore and empirically research how democratization in the host country influences the going-out process of Chinese enterprises. The overall results show that democratization impedes the inflows of Chinese enterprises’ cross-border M&A, because the higher the degree of democratization in the host country, the stronger the intensity of industry protection and the greater the power of trade unions—and this creates institutional risk for Chinese enterprises. We also find institutional risk aroused by democratization deeply influences the cross-border M&A of Chinese state-owned enterprises and the M&A flowing into the natural resources industry. This study contributes to further understanding democratization degree and institutional risk, and at the same time, it is also significantly meaningful for guiding the development and implementation of Chinese enterprises’ internationalization strategy. Copyright Springer Science+Business Media Dordrecht 2014

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    File URL: http://hdl.handle.net/10.1007/s11135-012-9822-0
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    Bibliographic Info

    Article provided by Springer in its journal Quality & Quantity.

    Volume (Year): 48 (2014)
    Issue (Month): 2 (March)
    Pages: 1013-1025

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    Handle: RePEc:spr:qualqt:v:48:y:2014:i:2:p:1013-1025

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    Web page: http://www.springer.com/economics/journal/11135

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    Related research

    Keywords: Democratization; Institutional risk; Chinese listed enterprises; Cross-border M&A;

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    1. Daron Acemoglu & Simon Johnson & James Robinson & Pierre Yared, 2005. "Income and Democracy," NBER Working Papers 11205, National Bureau of Economic Research, Inc.
    2. Yin-Wong Cheung & XingWang Qian, 2009. "The Empirics of China's Outward Direct Investment," Working Papers 172009, Hong Kong Institute for Monetary Research.
    3. Rui, Huaichuan & Yip, George S., 2008. "Foreign acquisitions by Chinese firms: A strategic intent perspective," Journal of World Business, Elsevier, vol. 43(2), pages 213-226, March.
    4. Elizabeth Asiedu & Donald Lien, 2010. "Democracy, Foreign Direct Investment and Natural Resources," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201009, University of Kansas, Department of Economics.
    5. Xiaohua Yang & Yi Jiang & Rongping Kang & Yinbin Ke, 2009. "A comparative analysis of the internationalization of Chinese and Japanese firms," Asia Pacific Journal of Management, Springer, vol. 26(1), pages 141-162, March.
    6. Liu, Xiaohui & Buck, Trevor & Shu, Chang, 2005. "Chinese economic development, the next stage: outward FDI?," International Business Review, Elsevier, vol. 14(1), pages 97-115, February.
    7. 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.
    8. Peter J Buckley & L Jeremy Clegg & Adam R Cross & Xin Liu & Hinrich Voss & Ping Zheng, 2007. "The determinants of Chinese outward foreign direct investment," Journal of International Business Studies, Palgrave Macmillan, vol. 38(4), pages 499-518, July.
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