How do political connections cause SOEs and non‐SOEs to make different M&A decisions/performance? Evidence from China

Abstract

This study examines the impact that political connections have on Mergers and Acquisitions (M&A) performance and the decisions of Chinese listed firms. We find that political connections destroy (create) value in SOEs (non-SOEs). Our findings show that connected SOEs are more likely to acquire local targets, especially when the local unemployment rate is high and when the firms are controlled by the local government, and they are less likely to conduct vertical mergers. M&A decisions of connected non-SOEs are less influenced by the government; instead, political connections in non-SOEs help bidders to integrate vertically and obtain external financing support.

The crowding out effect of booming real estate markets on corporate TFP: evidence from China

“…First, SOE managers may dislike innovation for, unlike their counterparts in privately controlled listed firms, they lack either the incentives or the ability to innovate (Megginson and Netter, ). Second, it is generally believed that SOEs are more politically connected (Cheng et al ., ; Liu et al ., ) and may have greater access to the real estate market if they want to invest in real estate for higher profits. Hence, it is assumed that housing price appreciation has a stronger (or more negative) impact on TFP for SOEs than for non‐SOEs.…”

Can short selling improve internal control? An empirical study based on the difference‐in‐differences model

“…Contrary to non‐SOEs, SOEs have a different type of agency conflict between the governance majority shareholder and outside minority shareholders. SOEs must accomplish a diversity of objectives, such as regional development, social stability and fiscal health (Liu et al ., ). Hence, unlike non‐SOEs, managers of SOEs are not exposed to market pressures such as stock prices, product and labour markets.…”

Political embeddedness and firms’ choices of earnings management strategies in China

“…Therefore, detection of low-quality reporting may damage not only the reputations of the firms owned by the central government, as well as their managers, but also that of the central government. In addition, the resource endowment and market status of central and local SOEs are different (Wu et al, 2012b;Liu et al, 2014;Liu et al, 2017Liu et al, , 2019Wang et al, 2018). Although local and central SOEs operate in the same industry, firms owned by the central government are usually leading conglomerates in the market with their larger pool of resources and support from the central government (Sun et al, 2002;Chen et al, 2004;Wang et al, 2008Wang et al, , 2018.…”

“…Although many Chinese firms have transformed from government entities to publicly traded companies, strong and complex ties with the government are likely to continue to influence these firms' strategic choices (Feng et al, 2019), including their corporate reporting strategies. The government often remains the major shareholder in a large number of listed firms, and thus maintains controlling interest (Chan et al, 2013;Liu et al, 2017Liu et al, , 2019Wang et al, 2018). Via de facto control of these firms (i.e., the ability to direct a company to act on the government's behalf), the government can directly influence corporate behaviour (Chen et al, 2011b;Wu et al, 2012a).…”

“…Via de facto control of these firms (i.e., the ability to direct a company to act on the government's behalf), the government can directly influence corporate behaviour (Chen et al, 2011b;Wu et al, 2012a). Furthermore, due to the appointment of top executives by the government, and the executives' pursuit of political careers, extensive political connections between the government and the senior management of firms are still very common (Fan et al, 2007;Li et al, 2008;Liu et al, 2017Liu et al, , 2019Han and Zhang, 2018;Peng et al, 2018;Deng et al, 2019). These political network connections are likely to indirectly influence the connected firms' reporting behaviour.…”