Political Connections and M&A Decisions: A Natural Experiment from the Anti-Corruption Cases in China

68 Pages Posted: 16 Feb 2015

See all articles by Qigui Liu

Qigui Liu

Department of Finance and Accounting, School of Management, Zhejiang University

Tianpei Luo

University of Wollongong - School of Accounting, Economics & Finance

Gary Gang Tian

Macquarie University - Department of Applied Finance and Actuarial Studies; Macquarie University, Macquarie Business School

Date Written: February 15, 2015

Abstract

Using the recent anti-corruption cases in China as a natural experiment, this study documents that connections with the government officials through bribing and personal connecting enable Chinese non-SOEs to increase their M&A activities, enjoy a better post-M&A performance, pay less M&A premium and conduct more local M&As before the connected government official is removed in an anti-corruption case. However, after the event, their M&A activities decrease significantly, post-M&A performance worsen, pay more M&A premium and they are less likely to conduct local M&As. Our findings are robust to a few robustness tests. Overall, our study provides direct evidence to the question: why firms seek to establish connections with government. We also reveal the benefit and cost for firms being politically connected.

Keywords: Political connections, anti-corruption, M&A decision, post-M&A performance

JEL Classification: G32; G34

Suggested Citation

Liu, Qigui and Luo, Tianpei and Tian, Gary Gang, Political Connections and M&A Decisions: A Natural Experiment from the Anti-Corruption Cases in China (February 15, 2015). Asian Finance Association (AsianFA) 2015 Conference Paper. Available at SSRN: https://ssrn.com/abstract=2565306 or http://dx.doi.org/10.2139/ssrn.2565306

Qigui Liu

Department of Finance and Accounting, School of Management, Zhejiang University ( email )

Hangzhou, Zhejiang Province 310058
China

Tianpei Luo

University of Wollongong - School of Accounting, Economics & Finance ( email )

Northfields Avenue
Wollongong, NSW 2522
Australia

Gary Gang Tian (Contact Author)

Macquarie University - Department of Applied Finance and Actuarial Studies ( email )

Room 513, Building E4A
North Ryde, NSW, 2109
Australia

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

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