The Effect Of Capital Structure On The Choice Of Payment Methods In Mergers & Acquisition

Under the new normal of economy,supply-side structural reform is the main policy direction for addressing the imbalance between supply and demand in China.Guided by this policy,it is urgent for some traditional industries and large-scale infrastructure construction industries to complete the five priority tasks of supply-side structural reform,namely “cutting overcapacity,reducing excess inventory,deleveraging,lowering costs,and strengthening areas of weakness.” China's state-owned enterprises stay in a monopoly position among traditional industries and infrastructure construction industries.In order to well perform state-owned enterprises' economic functions and improve their economic efficiency,the central government encourages them to accelerate the reform,improve the concentration of industries and realize the scale economy through mergers and acquisitions to cut costs and reduce excess inventory.Since some state-owned enterprises have higher leverage than non-state-owned enterprises for a long time,they must also take into consideration the possible impacts of the current leverage level on the selection of M&A payment methods and the moderating role of payment methods for leverage.Making up the majority of the M&A market,state-owned enterprises are in urgent need of returning to a more sensible level in the process of market reform.It is supposed that state-owned enterprises should think over the leverage and financial risks of mergers and acquisitions throughout.For the purpose of providing improvable suggestions,the paper constructs an estimation model of enterprises' target capital structures to measure their leverage deficits(or low leverage),taking the mergers and acquisitions of A-share listed companies in Shanghai and Shenzhen between 2005 and 2016 for example.Besides,based on multivariate regression analysis,it studies the moderating role of leverage deficit attributes on merged enterprises' selections of payment methods.Empirical results show that leverage deficit plays a moderating role in payment method,prominently existing in the selection of cash payment and hybrid payment of cash and stock.Namely,enterprises with higher leverage deficit are more motivated to implement merger and acquisition to improve enterprises' capital structures.Nevertheless,with merged enterprises divided into state-owned and non-state-owned ones according to property right attribute,it is found that state-owned enterprises are still prone to use cash payment even when they are in high leverage,which reflects state-owned enterprises have,to a certain extent,weakened risks of leverage with insufficient sensitivity.Given the impact of stock market,empirical results show that stock price and property right have interaction effects on merged enterprises' selections of payment methods.That is,when the stock market is brisk,both state-owned and non-state-owned enterprises are more motivated to use stock payment.Based on the study,with the aim of optimizing the rationality of state-owned enterprises' choice of M&A payment methods in the context of supply-side reform,this paper proposes that state-owned enterprises strengthen risk management,rationally use high-value cash payments,actively explore mixed payment methods,and avoid opportunistic behaviors of leverage adjustment.M&A is suggested to a tool for both state-owned and non-state-owned enterprises to optimize the capital structure and enhance their vitality.