Chinese Firms Crossing Trust Barriers In Overseas M&A

Overseas M&A,a form of FDI,has become an important channel for emerging economies to smooth the external cycle,promote the upgrading of industrial chain and improve the ability of resource allocation.More and more Chinese enterprises have begun to join the wave of overseas M&A.However,overseas mergers and acquisitions of Chinese enterprises often cause heated debates in host countries and are restricted or even resisted to varying degrees.This paper chooses the merger and acquisition cases of Zoomlion and Changyu A as the research object.Based on institutional theory,social identity theory,information asymmetry theory and contract theory,this paper discusses the trust barriers faced by Chinese enterprises in overseas M&A and the strategies to break through the trust barriers,and further explores the path and effect of "Chinese enterprises + overseas investment institutions" type M&A mode.The study found that the differences in political system,economic system and cultural traditions of both sides may lead to the host country to produce trust barriers in our M&A activities.Namely,the deviation and error of understanding and judgment between M&A subjects and stakeholders make the host country suspect that overseas M&A is motivated by non-marketability.In terms of the way to break through the trust barrier,Chinese enterprises tend to choose the "Chinese enterprises + overseas investment institutions" type M&A mode.Joint overseas investment institutions,especially those with a reputation in the host country,can quickly establish contact with local stakeholders and obtain "implicit guarantee" and "free-rider effect" from the social reputation of overseas investment institutions at a lower cost,so that overseas M&A companies show less foreignness and are more legitimate in the eyes of stakeholders.So as to eliminate the misgivings of the acquirer and the regulatory subject on the acquirer and better promote the cultural integration of both sides.In terms of the path selection of joint overseas investment institutions,Chinese enterprises tend to take the strategy of inviting overseas investment institutions as co-investors and exchanging ownership for legitimacy.Zoomlion invites foreign investors to join in its merger and acquisition,and signs option agreements with foreign investment institutions,sharing benefits and risks.Changyu A adopted the strategy of exchanging ownership for legitimacy and introduced foreign investment institutions into its ownership structure.Both of these approaches can ease host countries’ distrust of Chinese companies’ overseas M&A activities.These findings contribute to the overseas mergers and acquisitions of emerging economy enterprises,as well as to the broader internationalization literature,and have certain implications for the overseas mergers and acquisitions of Chinese enterprises.