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The financing of Chinese outbound mergers and acquisitions: Is there a distortion between state-owned enterprises and privately owned enterprises?

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  • Sun, Zhe
  • Vinig, Tsvi
  • Hosman, Thomas Daniël

Abstract

This study offers novel theoretical and empirical insights into the financing of China’s outbound mergers and acquisitions (M&As). We examine whether the financing of Chinese outbound M&As is distorted between state-owned enterprises (SOEs) and privately owned enterprises (POEs). We conduct an empirical study using a dataset of 224 outbound M&A deals. We find that SOEs enjoy a higher level of financing capacity in terms of debt and equity compared with POEs, although SOEs demonstrate lower stock performance, which implies that there are financing distortions in Chinese outbound M&As. Furthermore, we find that state ownership compensates for the poor M&A performance of SOEs through positively moderating the effect of debt financing, which leads to a “fictional” prosperity for SOEs. This result denies our theoretical prediction that builds on a Western theory concerning the disciplining function of debt financing on firm value; it provides evidence that the positive effect of debt financing in Chinese outbound M&As is derived from financing discrimination.

Suggested Citation

  • Sun, Zhe & Vinig, Tsvi & Hosman, Thomas Daniël, 2017. "The financing of Chinese outbound mergers and acquisitions: Is there a distortion between state-owned enterprises and privately owned enterprises?," Research in International Business and Finance, Elsevier, vol. 39(PA), pages 377-388.
    • Handle: RePEc:eee:riibaf:v:39:y:2017:i:pa:p:377-388
    DOI: 10.1016/j.ribaf.2016.09.005
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    Cited by:

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    2. Evans Opoku‐Mensah & Yuming Yin, 2023. "Controlling shareholders' influence on acquisition decisions and value creation: An empirical study from China," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 1965-1980, April.
    3. Bai, Min & Cai, Jifu & Qin, Yafeng, 2021. "Ownership discrimination and private firms financing in China," Research in International Business and Finance, Elsevier, vol. 57(C).
    4. Guo, Jianquan & Cheng, He, 2024. "Performance feedback on sales growth and M&A: Evidence from China," Japan and the World Economy, Elsevier, vol. 69(C).
    5. Liu, Jinjing & Wang, Hong, 2022. "Economic policy uncertainty and the cost of capital," International Review of Financial Analysis, Elsevier, vol. 81(C).
    6. Chen, Yuhuilin & Gunessee, Saileshsingh & Hua, Xiuping, 2022. "Emerging market multinationals’ pursuit of strategic assets through cross-border acquisitions," Research in International Business and Finance, Elsevier, vol. 63(C).

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