Analysis On The Impact Of M&A In Terms Of Target Firm's Financial Constraits

Many companies face financing constraints.The increasing cost of external financing resulting in inefficient allocation of resources.At the same time,waves of mergers and acquisitions owing to different reasons occur in China.Can mergers and acquisitions relieve target company's financing constraints?This paper will focuses on whether target company can solve financing constraints through mergers and acquisitions.The financing constraint is defined as the fact that the cost of external financing is significantly higher than the cost of internal financing.And it is precisely because the information asymmetry between investors and financiers leads to this phenomenon.From the perspective of the causes of financing constraints,the ideal M&A can provide more information by acting as a tool of information transmission and information screening for investors,so as to alleviate the target corporation's financing constraints.However,the fact is that the merger is affected by too many factors and can not achieve the desired effect,so this article uses Chinese M&A cases whose target firm are public occur in the period of 2008-2015 as sample,and use this sample to test the difference of target company's financing constraints after acquisition.In addition,this paper classified the sample according to the types o.f M&A,and test the differences in impacts of different types of M&A on the aspect of financial constraints.According to Almeida(2004),a firm facing financial constraints will choose to allocate additional cash flows to increase its investments both today and in the future,so cash holdings to finance future incremental investment should increase with the firm's cash flows.Based on Almeida's conclusion,this paper construct a multiple regression model using the cash flow sensitivity of cash as a measure of financial constraints with SIZE,LEV,CASH,?SALES,ROE,EXPEN,GDP,BOOM,CAP as control variables,and fit this regression model with the financial data of target firms between 2007 and 2015.The empirical results show that the degree of financial constraints of the company is deepened after cquisition.In addition,according to the empirical results of sub-sample,the M&A with the motivation of strategic integration can relieve target company's financing constraints,while the M&A with the motivation of financial investment and asset adjustment will deepen target company's financing constraints more;the M&A with unchanged control will deepen the target company's financing constraints,and M&A with changed control can slightly relieve target company's financing constraints.This paper also uses total investment and the cash flow sensitivity of investment as the substitute index to measure financial constraints to tests the robustness of the empirical results.The test results show that the empirical result's are robust.By comparing the different types of mergers and acquisitions,this paper speculates that the probably reasons of these results are:(1)the majority of mergers and acquisitions are for the motivation of speculative purposes or capitalization instead of company's development,(2)new shareholders brought by the acquisition increase the complexity of the decision-making so' that financing decision-making may be blocked;(3)because of information asymmetry,the acquirer may make a wrong assessment of acquired company before M&A,so that the expected synergistic effect can not be achieved after M&A.For above reasons,this paper also put forward some corresponding policy recommendations.