Foreign Acquisitions and Target Firms' Performance in China

19 Pages Posted: 15 Jan 2017

See all articles by Qing Liu

Qing Liu

Renmin University of China

Ruosi Lu

Beijing Technology and Business University

Larry D. Qiu

The University of Hong Kong - Faculty of Business and Economics; Hong Kong University of Science & Technology (HKUST) - Department of Economics

Date Written: January 2017

Abstract

This paper empirically investigates the effects of foreign acquisitions on several performance measures of Chinese target firms. Using a self‐constructed database that includes information on foreign acquisitions in China and the accounting information of Chinese manufacturing firms from 1998 to 2007, we find that foreign acquisitions significantly improve the productivity, sales and fixed asset investment of the target firms. We address the potential endogeneity issue in the OLS estimation using the difference‐in‐differences technique, with two control groups, namely the would‐be targets and the propensity‐score‐matched targets. We also find that the performance‐enhancing effect of foreign acquisitions becomes stronger when larger technology gaps are observed between the acquirers and the targets. An inverted‐U relationship is observed between the post‐acquisition performance of the target firms and the target firm equity that is held by the foreign acquirers. The performance effects are qualitatively different among vertical, horizontal and conglomerate acquisitions.

Suggested Citation

Liu, Qing and Lu, Ruosi and Qiu, Larry Dongxiao, Foreign Acquisitions and Target Firms' Performance in China (January 2017). The World Economy, Vol. 40, Issue 1, pp. 2-20, 2017. Available at SSRN: https://ssrn.com/abstract=2899183 or http://dx.doi.org/10.1111/twec.12428

Qing Liu (Contact Author)

Renmin University of China ( email )

Ruosi Lu

Beijing Technology and Business University

No. 11/33, Fucheng Road, Haidian District
Liangxiang
Beijing, 102488
China

Larry Dongxiao Qiu

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Hong Kong University of Science & Technology (HKUST) - Department of Economics ( email )

School of Economics and Finance
University of Hong Kong
Pokfulam
Hong Kong

HOME PAGE: http://www.bm.ust.hk/~larryqiu/

Register to save articles to
your library

Register

Paper statistics

Downloads
0
Abstract Views
138
PlumX Metrics