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Does financing of Chinese mergers and acquisitions have “Chinese characteristics”?

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  • Gu, Lulu
  • Reed, W. Robert

Abstract

This paper analyzes the financing of Chinese mergers and acquisitions. It is motivated by two issues associated with characteristic features of the Chinese economy. First, foreign ownership restrictions can potentially inhibit Chinese acquiring firms’ use of equity to finance overseas M&A deals. Second, the ability of state-owned enterprises (SOEs) to secure favorable loan terms may provide them an incentive to rely more on cash financing. We collate data from four databases to obtain a sample of over 6000 M&A deals that were completed during the 1997–2014 period. We find evidence to support the first supposition but not the second.

Suggested Citation

  • Gu, Lulu & Reed, W. Robert, 2016. "Does financing of Chinese mergers and acquisitions have “Chinese characteristics”?," Economics Letters, Elsevier, vol. 139(C), pages 11-14.
    • Handle: RePEc:eee:ecolet:v:139:y:2016:i:c:p:11-14
    DOI: 10.1016/j.econlet.2015.11.036
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    1. Mara Faccio & Ronald W. Masulis, 2005. "The Choice of Payment Method in European Mergers and Acquisitions," Journal of Finance, American Finance Association, vol. 60(3), pages 1345-1388, June.
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    4. 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;Academy of International Business, vol. 38(4), pages 499-518, July.
    5. Karampatsas, Nikolaos & Petmezas, Dimitris & Travlos, Nickolaos G., 2014. "Credit ratings and the choice of payment method in mergers and acquisitions," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 474-493.
    6. 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.
    7. Boone, Audra L. & Lie, Erik & Liu, Yixin, 2014. "Time trends and determinants of the method of payment in M&As," Journal of Corporate Finance, Elsevier, vol. 27(C), pages 296-304.
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    Cited by:

    1. Yue Gu & Shenglin Ben & Jiamin Lv, 2022. "Peer Effect in Merger and Acquisition Activities and Its Impact on Corporate Sustainable Development: Evidence from China," Sustainability, MDPI, vol. 14(7), pages 1-20, March.
    2. Yang, Zhenbing & Chen, Zhuo & Shi, Qi & Yan, Bing, 2021. "Does outward foreign direct investment increase debt ratio? Firm-level evidence from China," Structural Change and Economic Dynamics, Elsevier, vol. 57(C), pages 1-12.
    3. Jindal, Varun & Seth, Rama, 2019. "A new order of financing investments: Evidence from acquisitions by India’s listed firms," Journal of Corporate Finance, Elsevier, vol. 58(C), pages 307-328.
    4. Zhengqiang Feng & Siman Xie, 2021. "The DuPont financial indicators and the short‐term market performance of Chinese cross‐border M&As: The moderating role of payment method," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 4262-4276, July.
    5. Shanshan Ouyang & Yanxi Li, 2019. "Confucius Institute and the Completion of Chinese Cross-Border Acquisitions," Sustainability, MDPI, vol. 11(18), pages 1-22, September.

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    More about this item

    Keywords

    Mergers and acquisitions (M&As); Foreign ownership restrictions; State owned enterprises (SOEs); M&A financing; Chinese firms;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

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