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Fault-tolerance and error-correction mechanisms and mergers and acquisitions of state-owned enterprises: Evidence from China

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  • Zhao, Liangkai
  • Yang, Huayue

Abstract

This study empirically investigates the impact of fault-tolerance and error-correction mechanisms (FEMs), which have been implemented by the Chinese government in a staggered manner, on the mergers and acquisitions (M&As) of state-owned enterprises (SOEs) using data from China's A-share listed companies from 2010 to 2021. Our analysis reveals that FEMs promote the M&As of central, provincial and municipal SOEs significantly and contribute to the improved long-term accounting and market performance of SOEs after M&As by improving corporate governance and risk-taking levels. The robustness of our findings is confirmed through a variety of identification methods and alternative measures. Moreover, the incentive effect of FEMs on the M&As of SOEs is more pronounced in enterprises characterized by stronger promotion incentives and shorter tenure for managers. Additionally, our results indicate that FEMs raise the level of related diversified and cross-regional M&As of SOEs. These findings enhance the understanding of the significant role that FEMs play in shaping the investment strategies of SOEs.

Suggested Citation

  • Zhao, Liangkai & Yang, Huayue, 2025. "Fault-tolerance and error-correction mechanisms and mergers and acquisitions of state-owned enterprises: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 104(PA).
    • Handle: RePEc:eee:finana:v:104:y:2025:i:pa:s105752192500393x
    DOI: 10.1016/j.irfa.2025.104306
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