The Institutional Roots And Real Effects Of Mergers, Acquisitions And Restructurings Of State-owned Listed Firms In The Transitional Economy Of China

Third Plenary Session of the 11th Central Committee of the Chinese Communist Party in 1978 lifted the curtain on reform and openness of China. Thereafter China started its history course of transferring from planned economy to market. In the great process of reformation, the restructuring of SOEs is a vital part. For the meadian and small size SOEs, governments in various levels adopt a method of gradual retreat and privatization. While for the large ones, the governments choose the strategy of"share issue privatization (SIP)".However, Chinese SIP did not achieve the desired results. A study reveals that SIP in China only got very limited success and the SOEs issued inefficiently. Another study indicates that incompletely restructuring is the main reason for poor efficiency. Halfway restructuring in the first time determines that the state-owned listed firms need more thorough reformation through operation in capital market, especially through mergers, acquisitions and restructurings.Since the"BAOYAN"incident in 1993, mergers and acquisitions (M&As) in China springs up and developed like a raging fire after 1997. Because China is a burgeoning market and an economical transitional country, M&As in China are different from those in developed countries, neither on the aspects of motivations, the mechanisms nor on the degree of government interventions. In Chinese capital market, the most significant trait of M&As is that the"related"and"regional"M&As prevail."Related"M&A is that the two sides of M&A are related or interconnected;"regional"M&A is that both of the two sides of M&A are governered in the same local government. Why this trait exists in our country? What are the institutional roots of M&As of the listed companies in China? What is the essence and purpose of the M&As? To answer these questions intensively, one must understand the institutional background of China thoroughly.Different institutional backgrounds need different theories. So the author argues that the methods used by the preceding scholars who interpret the motivations of M&As in China by the theory of the developed countries is deficient. This paper tries to study the institutional roots of mergers, acquisitions and restructurings of the state-owned listed firms from the view of"second reformation"and testify their real effects.The main contents of this paper are as follows.1. This paper reviews the evolvement of theories and practices of M&As domestic and overseas. Basing on the theories about institutional vicissitude and gradual reform, the paper analyzes the"path dependence"characteristic of the process of reformation and the institutional roots of local government behavior, which are as the bases of the following empirical study.2. Share issue privatization (SIP) is the start of the gradual reform of the Chinese state-owned listed companies and the practical basis of mergers, aquisitions and restructurings. Distinguishing all the samples into"part listing"and"integrity listing", this paper testifies empirically the relationship between listing modes and SIP efficiency of the state-owned enterprises (SOEs). The result reveals that SIP is not as successful as anticipation, in other words, Chinese SOEs'issue is inefficient. So it is necessary to improve the operating performance and solve the history problems of the state-owned listed companies through mergers, acquisitions and restructurings.3. Corporate control transfer is a typical M&A in which state-owned listed firms are as the target sides. This paper investigates the institutional roots of the corporate control transfer of the state-owned listed firms from the angles of"controlling benefit of local governments"and"the listing modes of SOEs"and empirically testifies the real effects of different categories of transfer. The results are as follows. Firstly, for the lower value firms from which they cannot get controlling benefit, the local governments intend to carry out"pay cash"transfer, while for the higher value firms from which they can gain higher controlling benefit, the local governments prefer to implement"no charge"transfer. Secondly, the controlling shareholders of"integrity listing"firms intend to carry out"pay cash"transfer, while the real controlling center of"part listing"firms prefer to impement"no charge"transfer. Thirdly,"pay cash"transfer, especially transfer to private companies results in improvement of operating performance, while"no charge"transfer deteriorates the operating performance of the listed firms.4. This paper investigates the M&As in which the state-owned listed firms are as the acquaring sides. Classifying all the M&As as"restructure"M&A,"investment oriented"M&A and"administration dominant"M&A, this paper empirically researches the institutional roots and the virtual effects of the three kinds of M&As. The result suggests that"integrity listing"firms tend to carry out"investment oriented"M&A and"administration dominant"M&A, while"part listing"firms prefer to implement the kind of"restructure"M&A. The"investment oriented"M&A and"restructure"M&A improve the performance significantly, while the"administration dominant"M&A worsens the operating performance of the listed firms unceasingly. 5. This paper researches the restructurings of listed firms facing exiting from the capital market. Sampling on the ST companies, the thesis empirically researches the institutional roots and real effects of this type of capital restructurings from the angle of"controlling benefit of local governments". The result reveals that when the listed firms are confronted with the threat of exiting from the capital market, for their own controlling benefit, the local governments carry out a series of restructurings to save these companies, while the"propping restructurings"lead to pseudo prosperity which is not virtual improvement of the operating efficiency.The primary innovations of the dissertation are as follows.1. From the angle of"second reformation"to research the mergers, acquisitions and restructurings of the Chinese state-owned listed firms;Chinese scholers usually study mergers, aquisitions and restructurings of the listed firms from the view of capital operation by using the methods of estern countries directly. While the development of Chinese capital market in the transitional economy is different from those in mature markets. Hence the author argues that it is inconsiderable to do so like these scholers.In the recent years, our state-owned enterprise reformation has already transited from the phase of"increment reform"to the phase of"subsistent reform", and the restructuring of the state-owned enterprises has been the key part of the SOEs'reform. During the special historical period, the mergers, acquisitions and restructurings has shouldered the historical responsibility of"deepening the reform of state-owned enterprise"and"second restructuring". So, this paper investigates the mergers, acquisitions and restructurings of our state-owned listed firms from the angle of"second reform".2. From the institutional roots of"restructuring and listing"of the SOEs to research the problem of mergers, acquisitions and restructurings of the state-owned listed firms;The reform in our country is a gradual reformation. This kind of reforming method determins that our reform is not accomplished in an action; it is a step by step, stage by stage and gradually deepened process.Basing on the theory of"gradual reform", this paper empirically examines the relationship of the categories of M&As and the listing modes of SOEs. The results show that the process of our state-owned enterprise reform has the apparent characteristic of"path dependence". Firstly, the categories of corporate control transfer are significantly related with the listing modes, in other words, companies issued in different modes tend to carry through different corporate control transfer. Secondly, the categories of M&As are significantly related with the listing modes, that is companies issued in different modes tend to implement different mergers and aquisitions. Thirdly,"part listing"is the institutional root of the"related"mergers and aquistions in Chinese capital market. 3. Investigating the local government behavior in the mergers, aquisitons and restructurings of the state-owned listed firms from the angle of controlling benefit;The SOEs'reform in China is a"compelling system vicissitude"dominated by the government. The"administration allocation"to the local governments shaped the special interest, function and behavior of the local governments. The interest of the local governments materializes in the controlling benefit of the local SOEs.This paper examines the crucial effects of the controlling benefit of the local governments on the mergers, aquistions and restructurings of the state-owned listed companies. The results are as follows. Firstly, the local governments implement different kinds of corporate control transfer according to their own controlling benefit. Secondly, for their own controlling benefit and protecting the local economic development, the local governments carry out frequent"propping"restructurings for the ST companies getting into the operation predicament. Thirdly, the interest of the local governments is the institutional root of"regional"M&As in Chinese capital market.4. Examing the real effects of M&As through two ways: one is to testify the change of the operating performance before and after the M&As, the other is to compare the performance improvement of"restructure","investment oriented"and"administration dominant"M&A.The literatures in China in existence usually study M&A performance by using the methods of mature capital market. Its validity needs discuss. For example, the method of"affair study"measures the M&A performance by the abnormal return of the stock during the period of affair, the premise of which is that the capital market is efficient, in other words, the fluctuation of the price of the stock can reflect the real value of the listed company. Shanmin Li argues that Chinese capital market in the background of the transitional economy is a burgeoning market, it is different with those in developed countries in development and efficiency. In China, the stock market is not yet weak efficiency. Furthermore, in Chinese capital market dealing with stable push and manipulating in secondary market previals; until these days, there are still quite a lot of stocks cannot circulate; the price of the circulating stocks cannot reflect the change of the value of the former. So Shanmin Li argues that the method of"affair study"is not fit for Chinese capital market.This paper examines the real effects of the mergers, aquisitions and restructurings of the listed companies through the operating performance. Examing the real effects of M&As through two ways: one is to testify the change of the operating performance before and after the M&As, the other is to compare the performance improvement of different M&As. The empirical results indicate that the real effects of M&As are related significantly with the categories of M&As, in other words, different categories of M&As lead to different real effects. The significance of this paper is as follows. Firstly, investagting the mergers, acquisitions and restructurings in two aspects of"listing modes of SOEs"and"local government behavior", it finds the institutional roots which induce the SOEs'reform into a deadlock; secondly, by a system of estimation it points out the outlet of how to step out of the deadlock and how to deepen the reform of the state-owned listed firms.