Political Connections, Financial Advisor Reputation And M&A

With the rapid economic development,the company’s development space is also expanding,which requires companies to expand their operating scale to adapt to its development speed,corporate decision makers can often achieve the purpose of seeking rapid development of their own companies through mergers and acquisitions.Western developed countries have experienced five waves of mergers and acquisitions,but China’s mergers and acquisitions practice and theory start relatively lagging behind.After the reform and opening up,the government began to decentralize the right to operate the business and improve the company’s self-reliance,which is the institutional basis for Chinese companies to conduct mergers and acquisitions.In recent years,Chinese companies have carried out mergers and acquisitions and reorganization activities.M&A events and amounts have both shown an upward trend.However,the results of mergers and acquisitions may be affected by many factors,such as obstacles to financing,industry restrictions,and differences in the valuation value of M&A between the merger and acquisition targets.So the performance of the company after mergers and acquisitions is often uncertain.Therefore,companies may obtain more financing,break through industry barriers,advance the process of merger and acquisition through the establishment of political connections.Compainies also employ investment banks as their financial advisers to reduce M&A errors and M&A premium in order to improve the performance of mergers and acquisitions.At present,China’s socialist market economic system is still in the development stage.The enterprise will seek the government to escort its merger and acquisition through political connection,and the financial industry where the investment bank is located is strictly regulated by the government.The investment bank financial advisers to undertake mergers and acquisitions are strictly regulated by the government.Therefore,this paper discusses the influence of political association on M&A performance,the influence of hiring investment bank financial advisors and the financial advisors’ reputation on M&A performance,at the same time this paper studies the adjustment function of financial advisors’ reputation on M&A performance which is connected with political connections.In this paper,This article selects the buyer’s merger and acquisition case on the A-share listing from 2013 to 2016 as the research object.At the same time the case study is used to study the performance of merger and acquisition,and thecumulative average excess return rate estimated by the market model method is also used to measure the M&A performance which help us to constructe the multiple regression model and to do the regression analysis.In this paper,political association data are obtained from the Guotai’an database,and the data of the financial advisor’s reputation is manually compiled according to the data released by the China Securities Association.The following conclusions are drawn:(a)The company’s own political connections have a significant negative impact on the changes o f stock price during the window of the M&A event when the company announces its M&A,which indicates that the company’s own political connections have a significant negative impact on short-term M&A performance.(b)By hiring investment banks as their financial advisors for M&A and restructuring,the M&A companies can significantly improve the performance of mergers and acquisitions.The higher the reputation of the financial advisor hired by the acquiring company,the better the performance of the company’s mergers and acquisitions.(c)The acquisition of financial advisors by the acquiring company can,to a certain extent,weaken the negative effect of the company’s own political connections on the performance of mergers and acquisitions.And the higher the financial advisor’s reputation is,the more likely it is to weaken this negative effect.Finally,based on the research results,this paper put forward corresponding suggestions to the three market participants of government,enterprises and financial advisors.