IDEAS home Printed from https://ideas.repec.org/a/eee/chieco/v95y2026ics1043951x25002627.html

Valuation adjustment mechanisms and acquirer’s innovation under the new company law reform: Evidence from China

Author

Listed:
  • Zhang, Peng
  • Hu, Die
  • Du, Linjue

Abstract

The new Company Law has outlined the fundamental principles governing valuation adjustment mechanisms (VAMs), making conditions stricter and responsibilities more clearly defined. Using data on VAMs signed in mergers and acquisitions (M&As) of China's A-share market from 2010 to 2023, we find that VAMs negatively affect both the quantity and quality of acquirer innovation. These results remain robust across various tests, including double machine learning approaches. The negative effect stems from short-term profit targets imposed by VAMs, which encourage managers to cut R&D spending to boost accounting profits. At the same time, weak governance allows controlling shareholders to divert resources through equity pledges and tunnelling, further constraining innovation. Further analysis shows that the implementation of the new Company Law has significantly improved corporate governance by systematically clarifying the validity and enforcement conditions of VAMs.

Suggested Citation

  • Zhang, Peng & Hu, Die & Du, Linjue, 2026. "Valuation adjustment mechanisms and acquirer’s innovation under the new company law reform: Evidence from China," China Economic Review, Elsevier, vol. 95(C).
    • Handle: RePEc:eee:chieco:v:95:y:2026:i:c:s1043951x25002627
    DOI: 10.1016/j.chieco.2025.102604
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1043951X25002627
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.chieco.2025.102604?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

    for a different version of it.

    More about this item

    Keywords

    ;
    ;
    ;

    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:eee:chieco:v:95:y:2026:i:c:s1043951x25002627. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/chieco .

    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.