The Impact Of Government Shareholding On Overseas Mergers And Acquisitions By Chinese Companies

With the ever growing outward Foreign Direct Investment (FDI) by China in the last5years, Chinese companies’activeness in outbound Mergers&Acquisitions (M&As) has captured world attention, especially Chinese State-Owned-Enterprises (SOE). This study is dedicated to understand whether Chinese SOEs can have a better post-merger operating performance than Privately-Owned-Enterprises (POE), i.e., the impact of governmental shareholding on Chinese companies’outbound M&As. Based on an empirical study of140deals in the past10years, after evaluating the difference of the acquirer’s pre-merger and post merger EBITDA Margin and building up a regression model, we find no significant evidence to infer that governmental shareholding has any impact on the Chinese acquirer’s post-merger operating performance improvement. However, supplementary non-parametric correlation test reveals a significant difference in post-merger operating performance improvement between investments in heavy&traditional industries and light&new industries. It also indicates that SOEs are more interested in big-sized deals in heavy&traditional industries. Besides, we developed a case study on Chinese iron&steel companies’outbound M&As. Given the analysis of9deals initiated by4companies, we find a shift from targeting traditional industries to new industries. That is, companies start to acquire steel processing&distribution centers, instead of traditional iron ore mining companies. The transition has the potential to bring in better post-merger operating performance, according to the value creation disparity targeting different industries.