| Merger and Acquisition(M&A) is one of the common methods that are used by enterprises to expand rapidly. Cross-border M&A is an important action for companies to carry out the strategy of "going out" during the National Twelfth Five-Year Plan period, and also a shortcut for enterprises to go abroad and exploit the international market. For this reason, cross-border M&A in China developed rapidly in recent years. Not only the frequency but also the amount of money hit a record, meanwhile our country ranked in the world’s three largest foreign investors for two consecutive years. However, the performance of cross-border M&A in China is not so satisfactory. Like the law of seven-seven said, 70% of mergers and acquisitions have not achieved the expected business value, of which 70% failed in culture integration after the mergers and acquisitions.Cross-border M&A has both advantage and disadvantage, just like a coin has two sides. Without enough information on economic system, political system, legal system, culture and other factors regarding M&A, the acquirer would suffer huge losses easily and block enterprise’s sustainable development. In recent years, many Chinese enterprises suffered investment discouragement and losses caused by reasons beyond themselves. What factors do frustrate the Chinese enterprises’ cross-border M&A? Zeng Ming who works in Cheung Kong business school(2012) argued that a lot of research confirmed that this kind of cross-border M&A has two fatal defects. One is that acquirer paid a higher premium in the process of trading, which was far beyond the actual value of the target. Furthermore it was difficult to get huge returns from this M&A to cover the high premium after M&A, which eventually led to failure. As a result, the initial triumphant winners became the big losers of mergers and acquisitions investment. This kind of phenomenon is named winner’s curse. The win of the M&A is often the beginning of the curse. The other is that the acquirers often think M&A can produce a lot of synergies. However the difficulty of integration is often greater than initially expected, which leads to a large part of synergistic effect difficult to achieve. This phenomenon is called "synergy trap".By delving into it,this article found that the country risk and national cultural differences had a great influence on the success of cross-border M&A. Among all kinds of cross-border M&A risks faced by enterprises, there is a certain type of external risk which is based on national sovereignty behavior and difficult to control for acquirers, such as host country’s policy environment, exchange controls, wars, natural disasters, etc. This kind of risk is named country risk. Cultural differences refer to the distinction between two countries in the traditional concept, social habits, different ideology, etc. The greater the cultural differences between the two countries, the two parties of cross-border M&A have more difficulty in communication and integration. It is obvious that Country risk and cultural differences play a significant role on cross-border M&A success. If the host country is in frequent war, economic instability, or it has a very different culture compared with China, it would be very hard for both negotiations and integration, and the success possibility of cross-border M&A would become lower. Financial policy is one of the most important decisions in the enterprises’ routine operation, and also one of the key factors which influence on success of cross-border M&A. Therefore, under the impact of the global wave of mergers and acquisitions, it is the top priority to apply the theory of cross-border M&A and financial management, analyze the history and status quo of Chinese enterprises’ cross-border M&A and research on how to choose financial policy according to the host country’s risk and cultural differences.This article takes cross-border mergers and acquisitions launched by Chinese public companies from 2005 to 2012 as sample and analyze empirically how to select financial policies in the respective phase of transaction and integration according to different country risk and culture differences. There are six sections in this paper. The organization of the paper is as follows. The first section is introduction. In this section this article describes the research background and significance, research thinking, content and innovation and the insufficiency. The second part is literature review. In this part we review the literature associated with this study including literature about cross-border M&A evaluation method, transaction process, financial policy choice in M&A integration process, the relation between country risk and cross-border M&A, and the relation between cultural differences and cross-border M&A. The third section introduces related theoretical basis, the Chinese system background of cross-border M&A and status quo of cross-border M&A in China. Related theoretical basis includes country risk theory, cross-cultural management theory and the theory of cross-border M&A financial policy, which contain the financial policies in the M&A transaction process and integration process. The system background includes the historical evolution process and developing trend of both M&A and cross-border M&A. Section four analyzes empirically the problem of financial policy choice in the process of cross-border M&A transaction according to country risk and cultural differences. We use 197 cross-border M&A samples that launched by Chinese listed companies from 2005 to 2012. Using country risk and cultural differences as adjust variables respectively, we test empirically how to choose financial policies such as payment, financing means, takeover premium in the process of cross-border M&A transaction to improve the success possibilities of transaction. In the model we control many other influencing factors such as transaction characteristics, the involved parties’ characteristics and so on. Section five analyzes empirically the problem of financial policy choice in the process of cross-border M&A integration according to country risk and cultural differences. We use 155 cross-border M&A samples that launched successfully by Chinese listed companies from 2005 to 2012. Using country risk and cultural differences as adjust variables respectively, we test empirically how to choose financial policies such as financing policy, investment policy, working capital management policy and dividend distribution policy in the process of cross-border M&A integration to improve the success possibilities of integration under different country risk and cultural differences. Section six concludes and puts forward some policy recommendations. In this part we summarize the full research, put forward improving suggestion based on the research conclusion and prospect for future research.According to the empirical research of this paper, we get the following conclusions: first, the country risk and cultural differences have significant negative impact on success of both cross-border M&A transaction and integration. Second, in the stage of cross-border M&A transaction, the choice of internal M&A financing way can effectively reduce M&A transaction failure risk when country risk is high or cultural differences are great. Third, in the stage of cross-border M&A transaction, the choice of cash M&A payment can effectively improve the success possibility of cross-border M&A transaction when country risk is high or cultural differences are great. Fourth, in the stage of cross-border M&A transaction, the choice of lower M&A premiums can effectively improve the success probability of cross-border M&A transaction when country risk is high or cultural differences are great. Fifth, in cross-border M&A integration phase, the choice of lower debt ratio can effectively improve the success likelihood of cross-border M&A integration when country risk is high or cultural differences are great. Sixth, in cross-border M&A integration phase, the choice of lower investment expending ratio can effectively improve the success possibility of cross-border M&A integration when country risk is high or cultural differences are great. Seventh, in cross-border M&A integration phase, the choice of higher working capital ratio can effectively improve the success possibility of cross-border M&A integration when country risk is high or cultural differences are great. Eighth, in cross-border M&A integration phase, the choice of lower dividend ratio can effectively improve the success possibility of cross-border M&A integration when country risk is high or cultural differences are great.The innovation of this article lies in three aspects: first, we pay attention to the choice of the financial policy during the process of cross-border M&A. Financial policy is one of the most important policies in enterprise’ all sorts of decision-making. However, most existing literature about mergers and acquisitions ignore them, or only focus on one of them, such as M&A payment. The research of financial policy choice during the process of M&A integration is very little. Second, we separate the process of M&A into transaction stage and integration stage and focus on different financial policy choice in different stage.Many scholars believe that although academia at home and abroad use a lot of theories and methods to study mergers and acquisitions, we seem to know little about the problem such as the influence factors of M&A success or failure. Some scholars think that the reason is that most of the existing literature about M&A see M&A as a simple event or only consider one stage. Yet they ignore the dynamics and complexity of the M&A itself. Foreign scholars argue that in order to improve the M&A success possibility M&A should be divided into several stages, which has different goals and actions. Using these views for reference we separate M&A into two stages, namely transaction stage and integration stage. The transaction stage is prior to subscribing the M&A agreement successfully. In this stage, we focus on M&A payment, M&A financing way and M&A premium. The integration stage is after subscribing the M&A agreement successfully and completing the handover process. In this stage, the trade of M&A has been completed, so the acquirers should focus on the following financial policies: financing policy, investment policy, the management of working capital policy and dividend distribution policy. The third is the perspectives of country risk and cultural differences used in analysis of cross-border M&A financial policy choice. Relative to the national M&A, the greatest characteristic of cross-border M&A is across national boundaries. Due to many external macroeconomic factors such as politics, economy, culture and other institutional factors, in the past 20 years Chinese enterprises’ failure rate of cross-border M&A is much higher than the world average measured by M&A outcome, which makes many enterprises in China suffer huge economic losses and face double pressure arising from the external competition and internal develop needs. It seriously hindered the pace of Chinese enterprises to go out. There are a lot of research about the relation of cultural differences and the performance of M&A at home and abroad. But most of them see cultural differences as the independent variable or control variable. So they get different conclusions. There is little research about the relationship between country risk and cross-border M&A, and then the use of Chinese establishment country risk index as country risk proxy variable is even less. Using country risk and cultural differences as adjust variables, this paper studies how to choose financial policies according to different country risk and cultural differences in order to circumvent the crisis due to country risk and cultural differences.
|
PDF Full Text Request