Chinese overseas M&A performance and the Go Global policy¹

Abstract

It is well known that government plays an important role in the business activities of Chinese firms. Less certain is the effect this influence has on the wealth of those firms’ shareholders. We contribute to the literature by analysing stock market reactions to announcements by Chinese firms of overseas mergers and acquisitions (OMAs). OMAs are of particular interest because there can exist a conflict between the interests of the public sector in acquiring overseas assets, and the interests of the private sector in maximizing shareholder wealth. Our main dataset consists of 213 observations of 157 OMA events that occurred between 1994 and 2009, using share market returns from the Shanghai, Shenzhen, Hong Kong and US markets. The aggregation of share price data across multiple markets, and the listing of firms in multiple exchanges, raise econometric issues for the standard event‐study methodology. To address these, we use a new, feasible generalized least squares (GLS) procedure developed by Gu and Reed (2012). On the basis of an analysis using both aggregated and disaggregated samples, and of daily and cumulative abnormal returns, we find consistent evidence that (i) Chinese OMAs have not lowered the wealth of shareholders of Chinese acquiring firms, and (ii) shareholders of Chinese acquiring firms have not fared worse under under China's ‘Go Global’ policy of encouraging outward investment by Chinese firms.

Gains to Chinese Bidder Firms: Domestic vs. Foreign Acquisitions

“…Media coverage and the literature (e.g. Boateng et al ., ; Gu and Reed, ) regarding Chinese acquisitions has noted acquirer sector preferences. Panel C of Table reports the time distribution of targets, stratified by industry.…”

“…An integral part of the motivation to invest abroad, the industry and size of the target relative to the bidder, could prove to be an important explanatory determinant of firm performance. Gu and Reed () explore market reaction to 145 overseas M&As over a 14‐year period from 1994 to 2008. These authors specifically focus only on the effects of the ‘Go Global’ policy of 1999 and find supportive evidence that the market responds positively toward M&A announcements.…”

The impact of outward FDI on the performance of Chinese firms

“…The rise of Chinese investments follows the provisions of the "Going Out" strategy, launched with the 10th Five-Year Plan in 2000 and reinforced in subsequent plans, which foster the internationalization of domestic firms. The aim is to promote industrialization and technological upgrading to support growth in the domestic economy (Gu and Reed, 2013). However, empirical research on the effect of OFDIs on the performance of Chinese investor companies is limited.…”

Define the Process of Human Resource Integration in Cross-Border Acquisitions: Evidence from Chinese Oversea Acquisitions

“…Chinese overseas mergers and acquisitions (M&As) have a relatively short history [12], beginning with the Go Global policy in 1999 [13]. The golden age for Chinese-Western M&A deals was made between 2005 and 2017 [14], after which the Chinese government changed its policies on overseas investments, and M&A activity dropped dramatically.…”

“…The golden age for Chinese-Western M&A deals was made between 2005 and 2017 [14], after which the Chinese government changed its policies on overseas investments, and M&A activity dropped dramatically. There was significant interest among Chinese companies to acquire the advanced technology used by Western companies [15], along with their more modern management systems [16,17], market resources, and innovation capacity [13]. High-income countries, particularly those of North America and Europe, attracted 65.6% of Chinese foreign direct investment outflows during this period [18].…”