Study On The Effect Mechanism Of The Listed Private Enterprises Overseas Mergers And Acquisitions Scale

Financial development is the important precondition for a country’s overseasinvestment.Viewed from the international experience, a country’s foreign directinvestment activity is often closely related to financial development degree. In recentyears, the development of China’s capital market and financial markets as well as theappreciation of RMB create a good chance for large-scale private enterprises to investoverseas, especially after the financial crisis in2008,overseas mergers and acquisitionsactivities of private enterprises is further improved. However, due to the obvious bias inresources allocation between private enterprises and state-owned enterprises underChina’s financial system, private enterprises are at a disadvantage statue when makingmergers and acquisitions overseas.While the private enterprises become the life-bloodof overseas mergers and acquisitions in number, the average deal size is small,whichreflects the financing constraints faced by private enterprises during the M&A overseas.Meanwhile, by analyzing the private enterprise overseas M&A events occurred in recentyears, we found that most of these private enterprises belongs to Zhejiang, Guangdong,Beijing and Shanghai which are economic and financial developed eastern regions, andless of them belongs to the central and western regions-the economic and financial lessdeveloped area. The findings provides a starting point for us to study the relationshipbetween financial development and private enterprises overseas M&A. So this articletries to discuss the impact on private enterprises overseas mergers and acquisitions ofChina’s regional financial development and its influence mechanism.Based on the existing related literature theory and empirical research, we start byanalyzing the function of financial development and financial development theory aswell as the theory of cross-border M&A. Then we further analyze influence mechanismof financial development on overseas M&A of private enterprises, from the view of themacro level and micro level of the financial development function, mainly includes theimpact on capital endowment and corporate financing constraints, the impact ontechnology progress and corporate R&D input, the impact on foreign technologyknowledge spillover and the absorptive capacity of domestic enterprises, and putsforward the corresponding theoretical assumptions.On the basis of theoretical analysis and theoretical assumptions, this paperestablish regression equation model. Using the overseas M&A events data of private enterprises listed in Shanghai and Shenzhen Stock Market during the period of2001-2013, this article discusses the impact mechanism of regional financialdevelopment on the listed private enterprise overseas M&A scale. Our empiricalresearch finds: firstly, the scale of overseas mergers and acquisitions of listed privateenterprises is sensitive to the enterprise internal cash flows, demonstrating obviousexternal financing constraints for the listed private enterprises, especially for themanufacturing enterprises which face more serious financing constraint; Secondly,financial development significantly reduces the overseas M&A’s financing constraintsof these enterprises, especially for capital-intensive and technology-intensive enterprises;thirdly, improvement of financial development, however, has not encouraged theselisted private enterprises to increase investment in R&D as well as technologyinnovation to motivate their overseas M&A activities, which implies the impact offinancial development on R&D may be overrated; lastly, financial development and theuse of foreign capital scale have a negative combined effect on the expansion of theenterprises overseas mergers and acquisitions, which means in financial less developedareas, foreign direct investment inflows in the local form the foreign capital stock,partly replace the capital allocation function of financial development and promoteprivate enterprises overseas mergers and acquisitions, and in the financial developedareas, the improvement of the financial function alleviate the dependence of privateenterprises overseas M&A on foreign capital.In addition, the study also found regional economic development, firm size andenterprise debt capacity have a significant role in promoting the size of overseas M&A;but foreign economic development and national cultural differences have no significantimpact on private enterprises overseas mergers and acquisitions.The main innovation of this paper lies in: firstly, we match the data betweenenterprises overseas M&A in ZEPHYR and Chinese listed private enterprises, build themicro level database of enterprises overseas M&A, thus making up for the insufficientthat currently domestic studies mainly qualitatively study the problem of overseas M&A;Secondly, studying the influence of the financial development in developing countrieson overseas M&A of private enterprises offers us a new perspective to understand theincentives on enterprises foreign direct investment.