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Does Financing of Chinese Mergers and Acquisitions Have “Chinese Characteristics”?

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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 enterprizes (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.

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  • Lulu Gu & W. Robert Reed, 2015. "Does Financing of Chinese Mergers and Acquisitions Have “Chinese Characteristics”?," Working Papers in Economics 15/17, University of Canterbury, Department of Economics and Finance.
    • Handle: RePEc:cbt:econwp:15/17
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    File URL: https://repec.canterbury.ac.nz/cbt/econwp/1517.pdf
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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.
    2. Edward C. Norton & Hua Wang & Chunrong Ai, 2004. "Computing interaction effects and standard errors in logit and probit models," Stata Journal, StataCorp LP, vol. 4(2), pages 154-167, June.
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    4. 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.
    5. 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.
    6. Martin, Kenneth J, 1996. "The Method of Payment in Corporate Acquisitions, Investment Opportunities, and Management Ownership," Journal of Finance, American Finance Association, vol. 51(4), pages 1227-1246, September.
    7. 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.
    8. Ismail, Ahmad & Krause, Andreas, 2010. "Determinants of the method of payment in mergers and acquisitions," The Quarterly Review of Economics and Finance, Elsevier, vol. 50(4), pages 471-484, November.
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    1. 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.
    2. Shanshan Ouyang & Yanxi Li, 2019. "Confucius Institute and the Completion of Chinese Cross-Border Acquisitions," Sustainability, MDPI, vol. 11(18), pages 1-22, September.
    3. 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.
    4. 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.
    5. 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.

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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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