Political Connection And Selection Of M&A Strategy

As a way of resource redistribution,M&A is more and more popular in capital market.However,unlike the western countries,M&A in China has lots of government involvement.There is a close relationship between enterprises and the government,forming a more general political connection phenomenon.As a kind of guanxi with government,political connection can be helpful for entering government regulation of the industry and can make the firms obtain more bank financing,affecting the company's strategic decisions.Researchers have conducted extensive and in-depth research on political connection and enterprise M&A strategy,but these studies focused on the influence of political connection on M&A area,M&A capacity and M&A performance.There is no study on the influence of political connection on selection of M&A strategy.Based on this particular national condition,we explore the selection of M&A strategy from the perspective of political connection,hoping to broaden the relevant research field.This paper bases on M&A events of 1954 A-share listed companies China from 2004 to 2011 as our samples,with a total of 14086 observations.This article divides mergers into three types including horizonal merger,vertical merger and conglomerate merger,and we explore the relationship within political connection,executive power and selection of M&A strategy.Firstly,we review the relevant research literature at home and abroad.Secondly,based on the resource-based theory,the principal-agent theory and manager power theory,we propose hypotheses.Then we build multiple regression model and use Stata software to make empirical analysis of the sample data.In this paper,the main conclusions are as follows:(1)compared with nonpolitical companies,politically connected companies are more likely to implement conglomerate merger.Political connection can help the firms obtain more bank financing and favorable tax incentives,and be helpful for entering government regulation of the industry,so companies are more likely to enter industries and areas away from core business to reconfigure resources and expand rapidly.(4)The greater the executive power,the stronger the promotion effect,and the more politically connected enterprises are inclined to implement the conglomerate merger.As a fortifier,executive power makes executives more motivated and able to build their own interests empire,and to implement large-scale expansion and risky projects when the company has political connection.This paper studies the influence of political association on selection of M&A strategy and the moderating role of executive power,which includes the following innovation points:(1)the previous literature focuses on the influence of political connection on M&A capacity and performance.This paper studies the influence of political connection on selection of M&A strategy,so the perspective is relatively new.(2)By using the executive power as the moderator variable,this paper develops the influence mechanism of political connection on selection of M&A strategy.(3)This paper investigates the degree of correlation to use the input-output method to divide M&A strategic types into horizontal M&A,vertical M&A and conglomerate M&A,so the research method is relatively new.The research on selection of M&A strategy is further enriched,and it is of great significance for enterprises to improve the corporate governance mechanism and make the correct strategic decision.