Political Connection And Cross-border Mergers And Acquisitions

After the launch of the "go global" strategy,Chinese state-owned enterprises have become more and more active in the international market,but it has also risen concerns and obstacles in developed countries for state-owned enterprises to acquire strategic assets under the control of Chinese government.However,private enterprises in China have little background from the Chinese government,so it is easier for them to gain trust of the approval departments of overseas local governments,and they are more able to complete cross-border mergers and acquisitions.In 2016,China’s private enterprises’ outbound direct investment surpassed that of state-owned enterprises for the first time.However,compared with state-owned enterprises,private enterprises face different institutional environment and discrimination,which seems to contradict the trend.Based on the existing researches,enterprises can obtain preferential treatment from the government by building political connections,including industry access,support to enter the international market,and financing facilities.Therefore,the establishment of political connections by private enterprises seems to be one of the solutions for them to ease the discrimination in the institutional environment and enter the international market successfully.However,at the same time,here is a "principal-principal" conflict in politically connected enterprises,and the executives may follow the government’s political and social purposes to increase their political capital.But these objectives may take precedence over the business objectives of the company and violate the goal of maximizing shareholder wealth,which can damage the performance of cross-border mergers and acquisitions.On the one hand,the previous researches mainly focus on whether political connections creates value for enterprises,but lack the research on the relationship between political connections and investment decision of enterprises.On the other hand,the research on the performance of transnational mergers and acquisitions is mainly based on national factors,such as cultural distance and tax system,while there is little research on the influence of the background of enterprise executives on the performance of mergers and acquisitions,that is,human factors.To some extent,this paper makes up for the blank.In order to study the relationship between the political connections of enterprises and the possibility of completing cross-border mergers and acquisitions,as well as the performance of cross-border mergers and acquisitions,this paper selects private enterprises listed in China’s mainland from 2007 to 2016 as samples for empirical research.For the influence of political connections on the possibility of cross-border mergers and acquisitions,the fixed effects panel logistic regression was firstly carried out,and the method of propensity score matching(PSM)and quasi-natural experiment was innovatively used to further verify.To study how political connections affect the performance of cross-border mergers and acquisitions,we used the short-term event study method and calculated the cumulative abnormal return(CAR)as the measurement of cross-border mergers and acquisitions performance.The results show that,compared with private enterprises with no political connections,the possibility of completing cross-border mergers and acquisitions can be improved by hiring politically connected executives to build ties with the government,but at the cost of lower announcement returns.It also suggests that politically connected executives seek their own political capital at the expense of shareholders’ wealth.