The Moderating Effect of Internal Control on Performance of Cross-Border M&A under the Uncertainty of Economic Policy: Evidence from China

Journal of Korea Trade Vol. 23, No. 7, November 2019, 128-146

19 Pages Posted: 9 Mar 2020

See all articles by Xiao-Lin Huang

Xiao-Lin Huang

affiliation not provided to SSRN

Guanting Chen

Tsinghua University - School of Economics & Management

Eun-Hye Lee

Pai Chai University - Department of Global Business and Trade

Date Written: November 20, 2019

Abstract

Purpose – The purpose of this paper is to investigate the relationship between internal control, economic policy uncertainty, and performance of cross-border merger and acquisition (M&A) based on the panel data of Chinese listed firms. The authors expected that internal control has a positive moderating effect on the performance of cross-border M&A and that it mainly occurs during periods when economic policies are relatively stable. In addition, the authors tried to find out the mechanism of internal control affecting cross-border M&A and the corporate performance.

Design/methodology – The authors tested the hypotheses by a multivariate regression model based on the panel data of Chinese listed firms from 2009 to 2017. The dependent variable is the change value of business performance (DROA_1,2,3) and the explanatory variables are cross-border M&A (MA), China’s uncertainty of economic policy (EPU), and internal control level (IC) respectively.

Findings – The authors find that internal control has a positive moderating effect on the relationship between cross-border M&A and corporate performance. Further, the authors find that the moderating effect is more significant in state-owned enterprises and that it mainly occurs during periods when economic policies are relatively stable.

Originality/value – This paper is the leading study that tries to analyze empirically the relationship between internal control, economic policy uncertainty, and performance of cross-border M&A. It provides a new avenue through which internal control might reasonably mitigate the risks of crossborder M&A and correspondingly improve the performance of cross-border M&A. It also confirms the moderating effect of internal control on the performance of cross-border M&A under the uncertainty of economic policy.

Keywords: Internal Control, Moderating Effect, Performance of Cross-border M&A, Uncertainty of Economic Policy

JEL Classification: F21, G34, G38, L25, M41

Suggested Citation

Huang, Xiao-Lin and Chen, Guanting and Lee, Eun-Hye, The Moderating Effect of Internal Control on Performance of Cross-Border M&A under the Uncertainty of Economic Policy: Evidence from China (November 20, 2019). Journal of Korea Trade Vol. 23, No. 7, November 2019, 128-146, Available at SSRN: https://ssrn.com/abstract=3534858

Xiao-Lin Huang (Contact Author)

affiliation not provided to SSRN

Guanting Chen

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

Eun-Hye Lee

Pai Chai University - Department of Global Business and Trade ( email )

155-40 Baejae-ro
Seo-gu, Daejeon
Korea, Republic of (South Korea)

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