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
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: Suggested Citation