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Cross-border mergers and acquisitions by Chinese listed companies: A principal–principal perspective

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Abstract

Chinese listed firms have gained the world’s attention with several ambitious, high-profile cross-border mergers and acquisitions. In most of these deals, the Chinese government is the largest shareholder of the acquiring firms. As such, it may be the case that the Chinese government pushes through such deals even though they are not in the best interests of minority shareholders, giving rise to principal–principal conflicts. Along these lines, we hypothesize that increased government ownership in the acquiring firm will be associated with investors viewing a cross-border merger deal in less favorable terms. In addition, we hypothesize that environmental complexity will moderate this negative relationship. We test our hypotheses with a sample of cross-border mergers and acquisitions involving Chinese firms from 2000 to 2008. We find support for the main hypothesis, that is, that investors are indeed skeptical of cross-border mergers and acquisitions deals when the government is the majority owner (i.e., principal–principal conflicts). However, we find no support for the moderating effect. We discuss the implications of these findings for researchers and practitioners and suggest future research directions.

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Notes

  1. A-shares are issued by China registered companies listed in either the Shanghai Stock Exchange or the Shenzhen Stock exchange. Shares are denominated in RMB which is not a freely-traded currency. Only Chinese citizens or foreign investors with Qualified Foreign Institutional Investor (QFII) status are allowed to trade. H-share is in fact A-share of mainland Chinese companies listed on Hong Kong Stock market. They are priced in HK dollars and freely purchasable by international investors. Persons from China are not allowed to trade H-shares except through Qualified Domestic Institutional Investor (QDII). However A- and H-shares cannot be converted to each other.

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  1. Department of Management, School of Business, Hong Kong Baptist University, Kowloon Tong, Kowloon, Hong Kong

    Yuan Yi Chen & Michael N. Young

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Chen, Y.Y., Young, M.N. Cross-border mergers and acquisitions by Chinese listed companies: A principal–principal perspective. Asia Pac J Manag 27, 523–539 (2010). https://doi.org/10.1007/s10490-009-9150-7

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