The Impact of Capital Structure Adjustment in Cross-Border Mergers and Acquisitions on the Operating Performance of Chinese Listed Companies: Empirical Study Based on Ridge Regression

Abstract

This research uses a sample of 44 Chinese listed companies that announced and completed cross-border mergers and acquisitions (M&A) in 2017 and builds a ridge regression model using indicators such as return on equity, asset-liability ratio and equity multiplier from 2016 to 2022 to explore the sustained impact of capital structure adjustments on their operating performance. We found that the adjustment of capital structure after cross-border M&A presents an N shaped relationship with operating performance. This indicates that debt financing in cross-border M&A activities can enhance financial leverage and profitability in the short term but may lead to a decline in performance in the medium term due to financial pressure and integration issues. In the long term, as integration completes and debt is gradually repaid, performance is expected to recover and improve. Additionally, we offer suggestions for companies planning to undertake cross-border M&A, advising careful management of liquidity and economies of scale, optimization of debt financing strategies and ensuring the stability of performance from a long-term perspective. This research not only fills the gap in the existing literature on the impact of capital structure adjustments on operating performance in cross-border M&A but also provides empirical evidence for companies to formulate scientifically reasonable cross-border merger and acquisition strategies.