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The effect of PWS arrangements on M&A activities

Author

Listed:
  • Huang, Dayan
  • Kou, Aiju
  • Liu, Chengyi
  • Liu, Shanmin

Abstract

This paper investigates the effect of Payments for Watershed Services (PWS) on firms' mergers and acquisitions activities (M&A) in China. We find that PWS results in more M&A activities of firms. We attribute this to firms' increased operating risks following PWS by providing evidence that: (1) PWS increases firm-level environmental penalties in upstream areas; (2) PWS's positive effect on M&A is more pronounced in firms with more sewage discharge and environmental penalties; (3) The targets of increased M&A are more likely to be in non-polluting industries, and areas not affected by PWS; (4) PWS only increase M&A in upstream areas, but not in downstream. Our finding provides a plausibly causal effect of Payments for Watershed Services on firms' M&A activities.

Suggested Citation

  • Huang, Dayan & Kou, Aiju & Liu, Chengyi & Liu, Shanmin, 2023. "The effect of PWS arrangements on M&A activities," Finance Research Letters, Elsevier, vol. 52(C).
    • Handle: RePEc:eee:finlet:v:52:y:2023:i:c:s1544612322007905
    DOI: 10.1016/j.frl.2022.103614
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    References listed on IDEAS

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