Abstract
AbstractUsing data of Chinese acquirers in strategic sectors, we assess the role of home government and the effects of the interaction between ownership type and government‐directed investment policies on acquiring firm value in cross‐border acquisitions (CBAs). We find that CBA activities in strategic sectors encouraged by the home‐country government through its investment policies experience significant increase in acquiring firm value. We also find that firms investing in government‐designated strategic sectors generate wealth for acquirers, but contrary to efficiency logic rooted in agency theory, state‐owned enterprises appear to outperform private‐owned enterprises. Further analysis indicates that three financial incentives associated with government‐directed policies – namely, interest‐rate reduction, tax incentives and direct subsidies – constitute sources of firm value. Our results raise several policy implications, including the need for transparent and rule‐based policies and governance systems to be developed and implemented by governments in the home and host countries to regulate state‐supported firms investing in sensitive strategic sectors.
Highlights
Emerging-market firms have expanded their investment activities worldwide in recent years, and in doing so have acquired some iconic firms in developed countries, signalling their intentions to compete with established players in global markets (Cuervo-Cazurra, 2018; The Economist, 2012; Xie et al, 2019)
The results indicate that the acquiring firms earn abnormal returns in all five event windows, suggesting that crossborder acquisitions (CBAs) announcements create wealth for acquiring firms
This paper investigates the impact of ownership type, state-directed investment policy and the ef
Summary
Emerging-market firms have expanded their investment activities worldwide in recent years, and in doing so have acquired some iconic firms in developed countries, signalling their intentions to compete with established players in global markets (Cuervo-Cazurra, 2018; The Economist, 2012; Xie et al, 2019). Growing research evidence suggests that emerging-market governments in India, China and Brazil support their firms’ internation-. One example is the ‘go abroad’ policy of the Chinese government, which fosters Chinese firms’ international expansion into industries designated as strategic and priority to seek resources unavailable in China. Under this policy, both state- and private-owned enterprises (SOEs and POEs) complying with the government policy guidelines in the ‘go abroad’ strategy receive privileged access to financial support and other preferential treatment. How home governments, the most salient institutions in emerging countries with resources and capability, influence firm internationalization and value has not been examined systematically, resulting in insufficient understanding of the consequences of their actions on firms (Hong, Wang and Kafourous, 2015; Huang et al, 2017)
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