Title: The effect of government involvement and payment method on merger and acquisition performance: the case of China

Authors: Matthias Nnadi; Evgeniia Volokitina; Daniel Aghanya

Addresses: School of Management, Cranfield University, Bedfordshire, MK43 0AL, UK ' Department of Computer Science, National College of Ireland, Republic of Ireland ' School of Management, Cranfield University, Bedfordshire, MK43 0AL, UK

Abstract: This paper applies a sample of 842 to investigate the effect of government involvement and payment methods on merger and acquisition of Chinese listed firms for the period 1993-2015. The study employs market model as benchmark to estimate expected returns for several event windows. We find that Chinese acquirer shareholders experience higher returns from the acquisitions in firms with no government involvements than those where government is involved. Our study demonstrates that stock-financed acquisitions maximise the wealth gains of shareholders than cash-backed acquisitions. Our finding further shows that using cash to finance government backed acquisitions yields extra wealth for investors on the announcement date whilst the market experience higher abnormal returns when stocks are used to finance the acquisition of privately held targets. The result of this paper has significant policy implications for both M&A financing decisions and government involvements in merger deals.

Keywords: mergers; performance; acquisition; Chinese; returns; government; China.

DOI: 10.1504/IJBAAF.2020.107951

International Journal of Banking, Accounting and Finance, 2020 Vol.11 No.3, pp.385 - 410

Accepted: 06 Nov 2018
Published online: 01 Jul 2020 *

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