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Geographic proximity and M&As: Evidence from China

Author

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  • Li, Chao
  • Li, Han
  • Zhao, Zhao

Abstract

This paper investigates the impact of geographic proximity on mergers and acquisitions (M&As). In recent years, the Chinese government has invested heavily in high-speed railway (HSR) construction, which has greatly reduced the commuting time between connected cities and facilitated cross-city investments. Therefore, we exploit whether two cities were connected by an HSR as a quasi-natural experiment to identify the causal relationship between geographic proximity and M&As. We find that the number of M&As between two HSR-connected cities increases by 9.6% after adopting HSR service. Additional results show that HSRs have reduced the average time of completing M&A transactions by 29.4% and increased the subsequent economic performance of the acquirers. A mechanism analysis shows that HSRs promote M&As mainly by alleviating the information asymmetry between acquirers and targets and promoting monitoring on targets.

Suggested Citation

  • Li, Chao & Li, Han & Zhao, Zhao, 2022. "Geographic proximity and M&As: Evidence from China," Emerging Markets Review, Elsevier, vol. 51(PB).
    • Handle: RePEc:eee:ememar:v:51:y:2022:i:pb:s1566014122000097
    DOI: 10.1016/j.ememar.2022.100892
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    Cited by:

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    2. Chao Li & Qian Zhou & Shi Chen, 2022. "Bringing Minds Together: High‐speed Railways, Team Building, and Innovation Collaboration," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 30(6), pages 34-58, November.

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