Political connection and M&A performance: Evidence from China

Abstract

This paper explores the role of political connections in mergers and acquisitions (M&A) by examining the stock market performance in the short-run announcement period and the long-run post-merger period of Chinese M&A from 1998 to 2017. We further examine whether the corporate governance mechanisms and nature of ownership may determine the extent by which political connections may impact on M&A outcome. The results show that political connection has a positive and significant impact on firm performance for both privately-owned enterprises (POEs) and state-owned enterprises (SOEs). The results are more pronounced in the presence of strong corporate governance mechanisms: board independence and board gender diversity. We also find that the effect of political connection on post-merger performance is higher for POEs in comparison to SOEs. Our results are robust across alternative measures of firm performance and alternative measures of political connection.