Abstract
This paper investigates the impact of geographic proximity on mergers and acquisitions (M&As). In recent years, the Chinese government has invested heavily in high-speed railway (HSR) construction, which has greatly reduced the commuting time between connected cities and facilitated cross-city investments. Therefore, we exploit whether two cities were connected by an HSR as a quasi-natural experiment to identify the causal relationship between geographic proximity and M&As. We find that the number of M&As between two HSR-connected cities increases by 9.6% after adopting HSR service. Additional results show that HSRs have reduced the average time of completing M&A transactions by 29.4% and increased the subsequent economic performance of the acquirers. A mechanism analysis shows that HSRs promote M&As mainly by alleviating the information asymmetry between acquirers and targets and promoting monitoring on targets.
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