The Impact Of Financing Constraints On M&A

With the deepening of the international subprime mortgage crisis,China’s economic development has experienced cyclical fluctuations.Facing the development situation of declining economic growth,the state has successively launched many macro-control policies,such as the four trillion government investment plan,the dynamic adjustment mechanism of the discriminatory legal reserve,and the supply-side structural reform focusing on "capacity reduction,de-stocking,deleveraging,cost reduction and improving underdeveloped areas",to guide the rational growth of the scale of money and credit and social financing,and to increase the financial support for economic development and economic restructuring,which will directly affect the corporate financing constraints.Mergers and acquisitions(M&A),as an important way for the country to achieve economic transformation and upgrading,industrial structure optimization and adjustment,and healthy development of enterprises,are the products of synergistic symbiosis in macro and micro areas。They are not only affected by financing constraints,but also presents different characteristics with changes in the macroeconomic environment at different stages of the macroeconomic cycle.Although academics recognize that financing constraints have a certain impact on M&A,the relevant research is not sufficient,ignoring the important role of the external economic environment.Based on the macroeconomic cycle background,studying the impact of financing constraints on corporate M&A,has important theoretical significance for improving the research content in this field and expanding the research scope of financing constraints and M&A relations.On the other hand,it also has important practical significance for the decision-making of M&A at the micro-level and for the economic development of the country at the macro-level.Based on the sample of A-share listed companies in China from 2007 to 2017,taking "raising questions-theoretical analysis-empirical analysis-research conclusions" as the basic idea,using the motivation theory of financing,the theory of financing constraint and the theory of financial accelerator,this paper analyzes the impact of financing constraints on M&A in the context of macroeconomic cycle,and then putforward the research hypothesis of this paper.Through descriptive statistical analysis,propensity matching score method,binary logistic regression and multiple linear regression,the research hypothesis is tested and the conclusion of this paper is drawn.The main research work and contents are as follows:Firstly,according to the research theme,this paper combs the financing constraints,M&A,business cycle and other aspects of the existing research literature,pointing out the contribution and shortcomings of the existing research literature,and then put forward the research questions of this paper.Secondly,in terms of theoretical analysis and mechanism of action,this paper uses agency theory,information asymmetry theory,financing order theory and financial accelerator theory to analyze the mechanism of financing constraints on M&A,and puts forward the hypothesis of this study.Thirdly,in empirical research,this paper uses descriptive statistical analysis,propensity matching score method,binary logistic regression and multiple linear regression to test the impact of financing constraints on M&A in different stages of the macroeconomic cycle,and verifies the moderating effect of the degree of marketization and the nature of equity in it.Then,this paper uses the method of changing samples and main research variables to test the robustness.Finally,the main conclusions of this paper are given,and the limitations of this study and future research directions are pointed out.The main conclusions of this paper are as follows:(1)The M&A transactions of Chinese enterprises have the characteristics of pro-cyclicality,that is,in the period of macroeconomic prosperity,the number and amount of transactions of enterprises increase faster,while in the period of macroeconomic recession,the activity of M&A market decreases,and the number and amount of M&A transactions increase slowly.(2)The financing constraints of listed companies are quite different among different industries.With the reform of China’s market economic system and the development of capital market,the financing constraints of listed companies in China have time-varying characteristics,and have certain synchronization with the changes of macroeconomic environment.At the same time,it is found that the state-owned enterprises have lowerfinancing constraints relying on their natural advantages.In the areas with higher degree of marketization,the financing constraints of the companies are relatively light and have certain regional distribution characteristics.(3)In the context of macroeconomic cycles,financing constraints have a negative impact on the possibility of M&A;Compared with enterprises in higher degree of marketization,enterprises in lower degree of marketization have a greater impact on the possibility of M&A;Compared with non-state-owned enterprises,financing constraints of state-owned enterprises have a greater impact on the probability of M&A.(4)The financing constraints of enterprises can significantly affect the strategic choice of mergers and acquisitions.In the context of macroeconomic cycle,the higher the degree of corporate financing constraints,the greater the possibility of large-scale M&A,and the greater the possibility of M&A between non-same industries.In the macroeconomic boom period,the higher the degree of financing constraints,the more likely enterprises are to conduct off-site M&A,but in the economic recession,the impact is not significant.At the same time,it is found that in different stages of macroeconomics,the degree of marketization and the nature of equity can influence the financing constraints on the strategic choice of M&A.In the macroeconomic boom period,the degree of marketization has a strong regulatory effect on the relationship between financing constraints and M&A strategic choices.During the macroeconomic recession,the nature of equity plays a strong regulatory role,which also proves that the market will play a more important role during the boom period,and the government will play a more important role during the recession.(5)At different stages of the macroeconomic cycle,there are significant differences in M&A performance between firms with different financing constraints and different M&A strategies.In the economic boom period,a good economic situation is a good opportunity for M&A for high-financing enterprises.And they can achieve higher performance by relatively small-scale M&A,M&A between the same industry and within the local scope.In the recession period,due to the lower cost of M&A,small-scale M&A,M&A between different industries and local M&A are conducive to the improvement of performance for enterprises with low financing constraints.The innovations of this paper are as follows:(1)Most of the researches on the impact of financing constraints on M&A are focused on financing constraints and M&A payment methods,M&A premiums,etc.It is rare to study the role of financing constraints in M&A from the perspective of M&A scale,M&A type and M&A regional selection.This paper proves theoretically and empirically that financing constraints can influence the size,type and region of M&A in the context of macroeconomic cycles.Further,the paper studies the changes of M&A performance when firms with different financing constraints implement different M&A strategy decisions in the context of macroeconomic cycles.This paper is helpful to make up for the deficiency of this research field and enrich the research content of the impact of financing constraints on M&A.(2)In the past,the research on M&A mainly focused on the two dimensions of corporate governance and M&A transaction characteristics.Although abundant research results have been achieved,less consideration has been given to external factors such as macroeconomic policies,macroeconomic cycle fluctuations and so on.This paper examines the impact of financing constraints on corporate mergers and acquisitions in the context of macroeconomic cycles.It is found that in different stages of the macroeconomic cycle,companies with different financing constraints have significant differences in M&A strategy choices.And the moderating effect of the degree of marketization and the nature of equity on the influence of financing constraints on the strategic choice of M&A is also obviously different.This research further expands the research perspective in the field of mergers and acquisitions.(3)This paper creatively constructs an evaluation index system from three aspects:financial coordination,business synergy and management coordination to measure the performance of M&A,enriching and expanding the measurement method of M&A performance.Using the method of propensity matching score to study the influence of financing constraints on the possibility of M&A,the research content of this paper is more realistic and the conclusions of empirical research are more objective and robust.