Financing Capability、M&A And Economic Consequence

M&A is a important way that allocating resources in a transitional economy.The Chinese economy has been undergoing transition from green-field-investment to mergers and acquisitions.However, the existing literature on mergers and acquisitions is extensive on mergers motive、payment and M&A’ performance, little literature has been entirely successful at explaining the relation between financing capability and M&A.Financing capability is not only a essential factor but also causes firms to make acquisitions.This paper analyzes path how to improve financing capability, the interaction between financing capability and takeover activity. Based on public corporates’data and various regions’finance development data, we exam the relation between financing capability and takeover activity.Theory demonstrates that financial resources efficiency is affected by financial system and financial institution.Driving financial development can offer more financial institutions, facilitates financial institutions competition.Financial development can also reduce asymmetric information between investors and firms. So financial development should help firms relieve dependent on external finance and reallocate capital to the highest value use.Thus firms’financing capability can be improved following financial development.In the presence of capital market imperfection, firms with more constrained should keep more retained earnings to build internal financing capability.Firms increase opportunities to make acquisitions in a transitional economy.Whether acquisition deals are finished are related to whether the firm maintains a higher financing capability.The empirical evidence shows that financing capability-rich firms are more likely than other firms to attempt acquisitions.When the firms are more dependent on external finance, the probability of acquisitions is Iower.However the financial development can reduce the firm’s external difficulty of raising money from outsiders.Thus the negative effect of dependent on external finance on acquisitions can be alleviated. And financial development enhances the probability of acquisitions when it is up to7.431.Because firms can more easily raise funds outside within an environment where there are less friction to capital movement.Cash-rich firms are more likely to make acquisitions.But when we add interaction variable which is the financial development and extra-cash reverses into model, the relation between cash and the probability of acquisitions is non-linear.The more extra cash lower the probability of acquisitions when financial development value is below6.113. Extra cash can enhance the probability of acquisitions when financial development value is up to6.113.We also find that the local financial development play an important role on M&A’scale of an area.We also examine the relation between financing capability and M&A’performance.The evidence suggests that M&A’performance is higher when firms are located in a higher financial development environment. Then we divide sample by ownership.The state-owned sample’results show that financial development has no significant impact on.But non-state-owned sample’evidence suggests that financial development keeps positive impact on M&A’performance.These results are consistent with the notion that because non-state-owned firms are more likely to suffer financial discrimination for political reasons.So non-state-owned firms benefit from financial development.We find that among state-owned firms, internal financing capability has a negative impact on M&A’performance. Which is consistent with the agency costs of free cash flow explanation.For the non-state-owned firms,the result shows internal financing capability does not lead to firm’value decreasing.