Do Acquisitions Relieve Firms' Financial Constraints?

With the effect of multiple factors such as the exit of capital seeking for markets,the return of China-concept stock,and high volatility in the secondary market,in recent years,China's M&A market expands rapidly,domestic acquisitions,overseas acquisitions and foreign capital acquisitions go hand in hand.Some managers argue that acquisitions can produce synergistic effect,thus forming the internal capital market,and improve enterprise efficiency and effectiveness.But it is worth noting that the managerialism theory is that corporate executives may drive irrational acquisitions in order to get a higher salary or reputation.It not only won't give enterprise benign development opportunities,it distorts the market capital allocation system.There are some domestic articles research that if acquisitions can relieve enterprises' financial constraints,but all those determine the financial constraint conditions before and after acquisitions by testing the sensitivity of investment to internal cash flow,and some scholars pointed out that the investment-cash flow sensitivity measures can lead to that for those firms without financial constraints can be measured with financial constraints,so in this paper,we use cash-cash flow sensitivity,to test changes in M&A financial constraints.In theory,this paper reviews the domestic and foreign literature and related theories about acquisitions and financial constraints,based on this,advancing the main points in this paper.That is acquirers of listed company acquisitions exist financial constraints,acquirers are in a state of lack of investment,the driving force of the M&A is to alleviate the financial constraints,and after M&A financial constraints is eased,in addition,for small firms,the degree of financing constraints relieves more than large enterprises after acquisition.Then in view of the main ideas of this article,we establish regression model on the regression analysis.In empirical aspect,we regard acquirers of listed acquisitions happened from 2011 to 2014 as the research object,selecting its financial data as sample.First we do descriptive statistics analysis and statistical test on the sample data,eventually we decide to use the generalized moment estimation method to regress our model.In addition,this paper replaces the explanatory variables in the model,and regress the model again to do robustness test.This article shows that acquirers of listed acquisitions have a significant positive correlation between its incremental cash and cash flow,and namely the cash flow sensitivity of cash is positive.Moreover,the better investment opportunities,the higher cash flow sensitivity of cash.But after M&A,there is a significant reduction in the cash flow sensitivity of cash,and it is close to zero.In addition,compared with the small scale enterprises,the released degree of financial constraints is bigger for large scale firms after M&A.This paper also replaces Tobin Q value as the ratio of future investment to current investment to do robust test,and we find no different results.Overall,for acquisitions between the listed companies in our country,acquirers face obvious financial constraints.What's more,acquirers are in a state of inadequate investment and the aim of M&A is to produce synergistic effect,forming internal capital market to relieve the financial constraints.We draw a conclusion that financial constraints are released on schedule after M&A.In addition,after the acquisition,compared with small scale firms,the financial constraints are relieved more for large firms.According to the conclusions of this paper,the relevant departments and agencies should expand financial channels,lowering the difficulty of financing,diversifying financial mode.For listed companies which have good development prospect,they can merger listed companies whose cash flow is stable to form internal capital markets further to reduce the cost of capital,release financial constraints.And for small listed companies,we should give more attention and subsidies to support its development.