| Multinational companies are the main receivers of foreign direct investment, the highspeed development of China’s foreign direct investment rely on the influence from transnational corporations to some extent. The rapid development of China’s economic has led some companies to grow their own. Meanwhile, under the advocacy of national "going out" strategy, many powerful companies have gone abroad, carrying out production and business activities throughout the world. Compared to developed countries, China’s specific national conditions determine the characteristics of the largest cross-border mergers and acquisitions, of Chinese companies which is influenced by domestic politics significantly (Kumar,2009;Wu,2010). From a policy perspective, despite the fact that governments have gradually deregulated business investments, Chinese enterprises who engaged in cross-border M&A, must be approved by Ministry of Commerce and the departments of the SAFE. From the firm characteristics, China’s large-scale cross-border mergers and acquisitions mostly done by the state-owned enterprises who have strong political relevance. M&A of large-scale private enterprises also tends to reach to government support. Therefore, the relationship between companies and government is likely to have important impact on the performance in cross-border M&A. Meanwhile, China’s relative stable political environment can lead to a relative stable relationship between companies and government, which provides an ideal research environment.This study attempts to shed new light on the role of political connections by examining cross-border mergers and acquisitions. Specifically, we analyze whether firms with political connections gain more from cross-border M&As, as measured by their post-merger long-term performance, than unconnected firms. We select M&As as the setting for our analysis for several reasons:First, few prior studies focus on the impact of political connections on the firm’s investment decisions-arguably the most important of all corporate decisions. Second, corporate cross border mergers are a unique type of business transaction, in that governments have both the opportunity and the motive to exert considerable influence. Lastly, there is a growing number of cross-border M&As in which a domestic firm acquires a foreign firm and it is especially helpful in the analysis of a firm’s political connections.This study makes several contributions. First, it extends the literature on the effects of political connections on firm valuation and firm behavior. Second, we provide new evidence on the potentially harmful effects of political connections. This finding deepens our understanding of the difficulties faced by politically connected firms in transforming government favors (e.g., better access to bank loans, government bailouts) into superior performance relative to unconnected peers. Third, we examined the influence of corporates’ nature ownership, and it affect the consequence between political connection and post-merger long-term performance. Fourth, among the international business research literature, the role of the political system has been widely mentioned in shaping corporate decisions. We also examined the effects of investor protection between political connection and post-merger long-term performance.This paper concludes relative researches and theories on political ties and cross-border M&A, by selecting 96 overseas acquisitions successful events from 2002 to 2012 as a sample, and adopting the assignment method to measure the political connection, which uses cumulative abnormal return (CAR) and buy and hold abnormal returns (BHAR) to measure long-term performance of M&A, and discusses the influence of political connection on cross-border M&A mergers performance. Moreover, it takes the nature of ownership and the degree of investor protection in to consideration, which divides the nature of ownership into two categories:state-owned enterprises and non state-owned enterprises, then investigated the relationship between long-term performance of companies and their political connection of these two type of companies. At the same time, use the adjusted anti-directors rights index to measure the protection of target investor, then study its adjustment power to impact the long-term performance of cross-border M&A and political connection of companies, finally, a conclusion can be drawn that the there is a negative relationship between the political connection of acquirer and performance of their cross-border M&A. This paper use the method of combinations of theoretical analysis and empirical study as well as qualitative analysis and quantitative analysis, besides, method like case-control and event study are also involved in to analyze the influence of companies’ political connection over long-term performance of cross-border M&A.Based on the research in this paper, we find that politically connected companies have significant negative affect on long-term performance of the corporates’ cross-border M&A. While further studies show that the nature of the ownership of the corporates has no significant affect on companies’ political connection and long-term performance of cross-border M&A, which is not quite in line with expectations. However, the study results also show that the level of investor protection from target country may play a very important role in adjusting the negative relationship between the political connection and long-term performance. In the regulation of this paper, this is due to that a higher investor protection will drive the government to be more transparency in their business activities, as well as its strict law enforcement rules and policies can play weaken the influence of political connection on corporates. Conclusions from this paper can not only help the companies to find out their weaknesses in order to require more favorable investment strategy and method, but also provide a reference to government when the authority make the investment strategy.At the corporate level, companies should be more dialectical and comprehensive. They should make it clear that political connection may not have a good influence on the corporates’ performance. They should pay more attention to their own development and the main business development. The long-term strategic planning in line with their own development is also a guidance for the corporates. And for the government, political connection is a double-edged sword, and the main task is to adjust the government-regulated market system and promote the long-term performance. The government should accelerate overseas M&A policy guidelines in order to reduce the difficulty of overseas investment for Chinese and form a dynamic development of overseas investment. |
