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Geographic proximity and cross-region merger and acquisitions: Evidence from the opening of high-speed rail in China

Zhi Jin, Yinan Yang and Liguang Zhang

Pacific-Basin Finance Journal, 2021, vol. 68, issue C

Abstract: Using the opening of high-speed rail (HSR) services in China as a natural experiment, we examine whether the exogenous increase in geographic proximity facilitates firms in making cross-region merger and acquisition (M&A) decisions. We argue that the opening of HSR can reduce the degree of distance-induced information asymmetry between bidders and targets by reducing travel time and costs. Using the multi-period differences-in-differences (DID) model, we find that the number of firms being targeted by non-local bidder firms significantly increases following the opening of HSR in the local city. The result is robust to the inclusion of control variables, alternative measures, different model specifications, and a propensity score matching DID model. Further analyses show that the effect of HSR on facilitating cross-region M&As is more pronounced when non-local bidder firms rely more on HSR in acquiring information about the distant target firms. In addition, we find that non-local bidder firms benefit from the opening of HSR by having superior post-merger performance, suggesting that the increased geographic proximity due to the opening of HSR leads to more efficient resource allocation decisions by firms.

Keywords: Geographic proximity; Information asymmetry; Cross-region mergers and acquisitions; High-speed rail (search for similar items in EconPapers)
JEL-codes: G34 R12 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.pacfin.2021.101592

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