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Government-affiliation, bilateral political relations and cross-border mergers: Evidence from China

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  • Zhang, Wenjia
  • Mauck, Nathan

Abstract

This paper examines the relation between government-affiliated ownership, bilateral political relations, and cross-border mergers. Using a sample of 219 cross-border mergers conducted by Chinese listed companies from 2000 to 2013 we document three main results. First, we find that government-affiliated bidder (i.e., those with political connections and/or government ownership) abnormal returns do not differ from non-affiliated bidders in the announcement period after controlling for deal characteristics. However, longer-term post-merger bidder abnormal returns are lower for government-affiliated bidders, consistent with the general inefficiency associated with government-affiliation. Second, our results indicate that improving bilateral political relations between China and target nations are positively associated with both short and long-term bidder performance, indicating a role for economic nationalism in firm outcomes. Third, we find that the interaction between government-affiliation and change in political relations is generally unrelated to bidder performance. However, in target nations with relatively low political risk, the interaction between government-affiliation and change in political relations is positively related to longer-term bidder performance. Thus, government-affiliation can be value enhancing in certain cases.

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  • Zhang, Wenjia & Mauck, Nathan, 2018. "Government-affiliation, bilateral political relations and cross-border mergers: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 51(C), pages 220-250.
    • Handle: RePEc:eee:pacfin:v:51:y:2018:i:c:p:220-250
    DOI: 10.1016/j.pacfin.2018.07.003
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