Cross-Border M&As by Chinese Firms: An Analysis of Strategic Motivation and Performance

Abstract

[Abstract] This paper considers the strategic motivation and performance of Chinese cross-border MA cross-border MA performance The paper supported by the Humanities and Social Science Foundation of MOE, P.R.C. (06JA790107) and the Social Science Foundation of Zhejiang province (06CGL15YBX) Introduction One of the most notable developments in China over the past two decades has been the vigorous pursuit of market-oriented reforms aimed at enhancing the competitiveness of Chinese firms' worldwide. The Chinese economic reform policies actively encourage Chinese firms to engage in outward investments rather than only attracting inward foreign investments into China. As a result, the number of Chinese firms engaged in the outward cross-border M&A activities is on ascendancy during recent years. It is important to note there is a huge difference between cross-border M&A flows from developing country to developed country and those from developed countries. For example, cross-border M&A activities involving firms from a developed country are likely to possess monopolistic and internalization advantages compared with the firms from a developing country. While firms from developed countries may be motivated to exploit their own resources, firms from developing countries may cross borders to invest in exploration of resources. It follows that, the M&As involving firms from emerging economy such as China to developed countries may be motivated to obtain intangible assets and resources which they do not have themselves. These assets include superior marketing skills, product differentiation, patent-protected technology, superior managerial know-how and economies of scale. It is thus argued that companies attempt to improve their core competences and fill in the strategic gap by cross-border M&A activities. It is argued that although the initial costs of cross-border M&A may be relatively high, the enterprises could expand their knowledge and improve the competitive advantage of the organization. In the long run, mergers and acquisitions may be an important vehicle to build capacity and improve organizational performance of the firm. Given the important role played by cross-border M&As, it is surprising that no study has been carried out on the motives and performance of the corporate M&As by Chinese firms in foreign countries. It is also important to point out that most of the empirical studies on cross-border M&A focus on the activities from developed to developing countries or to other developed countries with relatively little attention being given to cross-border M&As from developing countries to developed countries. It is therefore difficult to generalize the applicability of the conclusions drawn in the context of advanced market economies to the cross-border M&As conducted by firms in the Chinese emerging capitalist economy. This should be investigated. The purpose of this study is to examine the strategic motives and performance of cross M&A activities undertaken by Chinese firms using event study methodology. We examine this issue by focusing on what motivates Chinese companies to engage in cross-border M&As and the extent to which recent corporate acquisitions announced by Chinese companies have resulted in a generation of value for the acquirer. Literature Review There is extensive literature on the motives and effects of mergers and acquisitions (M&As) and the market for corporate control for value creation (Campa and Hernando, 2004). …

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 38 citations exist upstream.