The effects of political embeddedness on cross-border mergers and acquisitions in China: Alibaba’s case

Abstract

ABSTRACT With its dominant state-owned enterprises (SOEs), peculiar governance system and international ambitions, China offers a unique setting to test theories explaining the role of political embeddedness in management decisions. Cross-border M&As have become an essential tool for Chinese acquirers to internationalize. We examine whether political embeddedness influences firms’ propensity for conducting cross-border M&As and their success. Using panel data with 30,314 firm-year observations from 2000 to 2015, we show that non-SOEs conduct more cross-border M&As than SOEs and they benefit more from M&A activities. After summarizing the dilemmas faced by politically embedded enterprises (PEEs), we introduce the successful case of Alibaba acquiring Lazada to explain the quantitative results in detail. Finally, we suggest potential approaches to alleviate institutional barriers for successful cross-border M&As.