The Impact Of Negative Demand Shock On Enterprise’ Cross-Border M&As: Mechanism Analysis And Empirical Work

Affected by the financial crisis, the economies of Europe and the United States and other developed countries have been seen growth slow, meanwhile global stock market has shrunk sharply, capital market bubbles have been squeezed, a large number of enterprises have been in a dilemma of facing bankruptcy, and the developed countries is facing the plight of high unemployment and high inflation. In this case, the demand of the consumer in developed countries has been restrained, because of which the export demand in China decreased directly and sharply. On the other hand, market value of the enterprises facing bankruptcy are undervalued, which makes them eager to sell assets as soon as possible, so that these enterprises become relatively cheap then easier for the acquirers to look for targets. The financial crisis is an opportunity for China enterprises to merge these enterprises, and also is the prelude of the rapid growth of Chinese enterprises Cross-Border M&As. Since the outbreak of the financial crisis, China enterprises’Cross-Border M&As maintain active posture. Under this situation Chinese enterprises "hunters" in overseas have aroused widespread concern in the international community. Based on above, under the background of the financial crisis, our motivation is to confirm the impact of the negative demand shock on Cross-Border M&As, and to provide reference for enterprises on the selection of overseas development model in the future when they are facing economy fluctuation.Based on the case that the demand of the consumer from developed countries is shrinking, we develop a unified framework of integrating the optimal endogenous choice between export and Cross-Border M&A in the presence of negative market demand shocks, and construct a Unilateral market game model and a bilateral trade oligopoly game model to elaborate the intrinsic mechanism of the negative demand shock on the Cross-Border M&A decision and the performance. Based on the impact of the negative demand shock on the Cross-Border M&A decision and performance, we test the impact of the negative demand shock on Cross-Border M&A. In this way, the core section includes 4 chapters, and the whole paper can be divided into three parts according to the core contents:The first part is the analysis of the development and characteristics of Chinese enterprises’ Cross-Border M&A. Using detailed data and a large number of cases, we review the development of the Chinese enterprises’ Cross-Border M&A, and compare the characteristics of Chinese enterprises’ Cross-Border M&A before and after the financial crisis.The second part is the theoretical analysis of the impact of the negative demand shock on the Cross-Border M&A. we develop a unified framework of integrating the optimal endogenous choice between export and Cross-Border M&A in the presence of negative market demand shocks, and construct a unilateral market game model and a bilateral trade oligopoly game model to elaborate the impact of the negative demand shock on the Cross-Border M&A decision and performance. In particular, considering the political background of state-owned enterprises and taking "Political Connection" as the research perspective, we explore the impact of the negative demand shock on the state-owned enterprises’ Cross-Border M&A, and discusses the relationship between political connection and the negative demand shock when the state-owned enterprises to "go out".The third part is the empirical analysis of the negative demand shock on the enterprises’ Cross-Border M&A. In this part, we improve the negative demand shock on the enterprises’ Cross-Border M&A from two perspectives:the impact of the negative demand shock on the Cross-Border M&A decision, and the impact of the negative demand shock on the performance. The test for the former is finished by Ordered Probit model and Bivariate Probit model. The test for the latter is finished by Event study method.We construct a single-factor and two-factor market model to assess the abnormal return from Cross-Border M&A. Then, we make regression analysis on the relationship between abnormal returns and the negative demand shock. With the case of financial crisis in 2008, we discuss the impact of financial crisis on China enterprises’ Cross-Border M&A performance.After making the study of the impact of negative demand shock on Cross-Border M&A performance under the background of financial crisis, we get the following core results: considering the interaction among the three forces from the merger, impacted by negative demand, the enterprise will choose Cross-Border M&A. a state-owned firm with stronger political background implied by higher degree of political connection is more likely to propose a Cross-Bordered merger.