Chinese Enterprises Transnational Mergers And Acquisitions Of Financial Risk Research

Since the1990s, international capital flows has entered into a brand new stage ofdevelopment and cross-border mergers and acquisitions has gradually become the dominantway of foreign direct investment (FDI). The cross-border mergers and acquisitions of Chineseenterprises is developing rapdly as the result of China’s economic boom and theimplementation of the "going out strategy" which provide a good material basis and policysupport for its progress. However, its success rate is not high.It appears especially importantto analyze the reasons for failure in the context of high M&A rate and high failure rate. Thispaper argues that the failure of the cross-border mergers and acquisitions of Chineseenterprises is mainly caused by the financial risk which is in itself a financial activity and theimplementation of every decision will be reflected in the financial position of the enterprise inthe form of cost. Thus, this paper intends to study the possible financial risks in the M&Aprocess proceeding from the cross-border M&A process and based on it to propose feasiblepreventions to provide useful guidances on the cross-border M&A of Chinese enterprises.Starting from the process of cross-border M&A,we try to identify possible financialrisks—mergers and acquisitions strategic risk, pricing risk, financing risk, payment risk, therisk of financial integration—in each step including the screening of target company, thevaluation of target company, M&A feasibility analysis, M&A financing, the method of bidding,and post-merger integration.Then we should analyze the causes of these risks one by one. Inaddition, risk in the interest rate and exchange rate should be included in the financial risk,forthe inreasing uncertainty facing companies generated by fluctuations of the interest rate andexchange rate. After the discussion on causes of financial risk causes and its mechanism,make22listed companies which have worked on the cross-border mergers and acquisitions between2002-2009as samples and use the Z-Score model to analyze the changes of Z value caused bythe financial indicators changes in the first four years and the second four years to judge thesize of financial risks facing the enterprises. The empirical results show that there are yearlyincreasing financial risks with the cross-border mergers and acquisitions of Chineseenterprises. Finally, the feasible precautions have been recommended according to the causesof the various aspects of financial risk. As to the risk of M&A strategy, enterprises should clear their own development strategies;As to the pricing risk, efforts should be made to eliminatethe impact of asymmetric information, enterprises should select a reasonable pricing model,and select the appropriate payment method for the M&A business pricing; As to the financingrisk, they should broaden the financing channels to protectcapital supply;As to payment risk,enterprises should pay attion to the rational use of cash, equity and leveraged payment; As tofinancial integration, the emphasis should be made on the post-merger financial integration;last, as to the interest and exchange rate risk, the appropriate use of derivative instruments tohedge interest and exchange rate risk.