Political Connection And Long-run M&A Performance

From the Reforming and Opening up, the private economy in China has achieved rapid development, which has become an indispensable part of our national economy. However, due to the influence of socialist ideology, for a long time, it has been a lot of discrimination against private enterprises in all areas of economic activity. Private enterprises still encounter a variety of obstacles in the development process. In order to eliminate obstacles in the pursuit of a more favorable environment, private enterprises have been constantly searching for an alternative mechanism for the deficiencies in the system, this alternative mechanism is political connection.In order to offset the impact of the various adverse factors in the real economy, or in order to reap more economic benefits, private enterprises establish close ties between some government officials through various channels, which is known as political connection. Political association will have both a positive and a negative impact on private enterprise. Starting from the point of view of M&A, this paper analyzes the impact of political connection on long-run M&A performance.In the past few decades, along with the vigorous development of the M&A market, scholars at home and abroad carried out a large number of theoretical and empirical research on M&A. But their answer about the question if mergers and acquisitions create value is not consistent. This paper argues that an important reason for inconsistent results from these studies is that scholars did not take into account the impact of institutional factors on the M&A performance. In recent years, in order to seek a more scientific and rational explanation, more and more scholars began to study the impact of institutional factors on the M&A performance. Among them, the relationship between political connection and M&A performance has attracted the close attention of some scholars.Using M&A data about Chinese private listed enterprises from2007to2009, we examine the impact of political connection on long-run M&A performance. We find that political connection has not a significant impact on long-run M&A performance of private listed enterprises. We believe that the reason for this phenomenon is that the positive and negative effect of political connection cancels each other out. We also find that the long-run performance of diversification by M&A has gained a significant increase through political connection. Political connection has played an important role in diversification by M&A. Political connection can help private listed enterprises enter government-controlled industry through the implementation of diversification by M&A, and share the high profits from these industries. By dividing private listed enterprises into two types, the study finds that political connection has not significant impact on both direct listed firms and indirect listed firms.This paper deeply extends the study on political connection and long-run M&A performance. Generally speaking, political connection has not significant impact on long-run M&A performance of private listed enterprises, which has important policy implications. For private enterprises, they should make great efforts to achieve a variety of development strategies, rather than to seek to establish and maintain political connection. For government, government should take strict implementation of various policies and measures to eliminate discrimination against private enterprises in the real economy, which is not only conducive to the development of private enterprises, but also conducive to raising the level of the government to build a clean government and social benefits.