Cross-border M&As in the Chinese Market: State-owned Enterprises and Legitimacy Concerns

Abstract

As semi-political nature, state-owned enterprises (SOEs) are often subject to government interference in their M&A decision-making. Because of their political connections with local governments, both SOEs as acquirers or targets in cross-border mergers and acquisitions (M&As)are generally considered sources from legitimacy concerns. This thesis explores the relationship between legitimacy concerns from SOEs and cross-border M&A outcomes in the Chinese market. Further, the study also examines the impact of three moderating variables on SOE's legitimacy concerns in cross-border M&As. The main findings of this thesis are that SOEs in cross-border M&As face legitimacy concerns both as acquirers and targets, which seriously and negatively affect their acquisition outcomes. In terms of the impact of the moderating variables on legitimacy concerns from SOEs, the empirical results are presented in the following three chapters: Chapter 2 introduces the moderating influence of politically connected financial advisors(PC advisors) on legitimacy concerns raised by SOEs as targets in cross-border M&As. This chapter finds that the appointment of PC advisors as a 'helping hand' approach to government–business relationships to facilitates acquisition completion and shortens acquisition duration when the target company is a SOE, but this comes at the cost of higher advisory expenses than non-PC advisors. Chapter 3 investigates the moderating effect of institutional shareholding on SOE acquirers through cross-border acquisitions. The chapter finds that foreign institutional ownership as a 'signal sender' among SOE acquirers tends to mitigate the negative impact of legitimacy concerns on acquisition completion, but domestic institutional ownership does not have the same effect. Chapter 4 examines the moderating impact of the opening of high-speed railway (HSR) services on legitimacy concerns raised by SOE targets through cross-border M&As. Using the multi-period differences-in-differences (DID) model, this chapter finds that the opening of HRS as 'information bridge' increases both the probability and completion of cross-border acquisitions, as well as reduce the duration of such acquisitions when the target company is a SOE, implying that HRS opening mitigates legitimacy concerns raised by the Chinese regulatory agency