Political Connections and M&A Decisions: A Natural Experiment from the Anti-Corruption Cases in China
68 Pages Posted: 16 Feb 2015
Date Written: February 15, 2015
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: Suggested Citation