Cross-border Mergers and Acquisitions in China: An Industry Panel Study, 1991–2005

Abstract

Employing a panel database, this article investigates empirically the behaviour, at an industry level, of cross-border mergers and acquisitions (M&As) in the People's Republic of China for the period 1991–2005. The study reports that many of the cross-border M&As over the past decades in China have been driven by broad fundamental factors, such as industry size and profitability. Moreover, technological intensity is significantly associated with the level of acquisition activity, indicating the tendency that intangible resources and intellectual capability favour more acquisition into China. It is found that deregulation, as a specific industry shock, affects acquisition activities significantly. The findings, it is concluded, have important managerial and policy implications.

Keywords:

• China
• deregulation
• foreign direct investment
• industry shock
• mergers and acquisitions
• panel data

Notes

¹ Traditional industrial organization studies adopt ‘market concentration’ as a proxy to measure industry competition. However, in this study we argue industry concentration may not be relevant if conditions of entry are important in explaining inward foreign investment (Geroski, 1995). In addition, in emerging markets, due to size disparity amongst firms and the intervention by government and the state-owned status of leading firms, competition may be better reflected by the growth in the number of firms (Luo, 2001). The increase in the number of firms, following the decentralization and privatization of many industries, constitutes a good proxy for degree of competition during structural transformation (Jefferson et al., 1992).

² For more on the choice between fixed and random effects see Baltagi (1995) and Verbeek (2000).

³ The Thomson ONE (Bank) Deal database does not include transactions in China below US$1 million. We also use an alternative, such as the UNCTAD database for obtaining the original official cross-border M&As data in China.

⁴ The foreign firm is defined as such when the headquarters of the acquiring firm is registered outside Mainland China. For example, a Hong Kong-based firm is regarded as a foreign firm as well as a US-based firm.

⁵ R&D data does not continuously cover the period from 1991 to 2005 when data is missing for the years 1992 to 1994. As a result, the total number of observations on the full sample is 144. The total number of observations on the sub-sample (SOE variable added) reduces to 132 since SOE data is available from 1995 to 2005.