Political connection and M&A performance: Evidence from China

Sanjukta Brahma, Jing Zhang, Agyenim Boateng and Chioma Nwafor

International Review of Economics & Finance, 2023, vol. 85, issue C, 372-389

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.

Keywords: Mergers; Network theory; Grabbing hand theory; Political connections (search for similar items in EconPapers)
JEL-codes: G34 P20 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:85:y:2023:i:c:p:372-389

DOI: 10.1016/j.iref.2023.01.026

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