Research On The Behavior And Performance Of M&A In The Context Of Political Connection

Enterprises seeking political connection exist generally in the countries all over the world.Enterprises get more resources from the government through political connection to establish their own competitive advantage and maintain sustainable development;the government implements relevant demands more conveniently through political association with enterprises.Therefore a special mode of"win-win cooperation" is formed between the government and enterprises.In our developing country which is transferring from the planned economy to market economy,enterprises are also generally set up political connection to seek more resources and convenience,in order to promote their own development.Therefore,political connection has an important impact on the operation and development of the enterprise.Mergers and acquisitions,major strategic behavior of the enterprise,are also inevitably affected by political connection.Due to the good relationship with the government,politically connected firms have more advantages,such as more government subsidies,lower industry barriers,more favorable tax treatment and financing treatment.As a result,politically connected firms have more resources to carry out mergers and acquisitions.On the other hand,due to the support from the government,managers in politically connected enterprises tend to be overconfident and are more likely to initiate aggressive investment and M&A activities.In addition to more resources and convenience,the politically connected enterprises also bear the burden from the government at the same time.For example,the decisions of operation and M&A are affected in a certain extent by government intervention.Political connection,therefore,has various influence on enterprises' M&A.At the moment,on the choice of a way to establish political connection,corporate donation is an efficient way.Enterprises with charity not only achieved the purpose of setting up a positive social image,but also meet the government's relevant demands at the same time.Enterprises virtually reached a tacit understanding with the government,and political association are thus established.This article uses donation to measure political connection,and hopes to explore the influence of political connection on enterprise's M&A.In this paper,the sample data of empirical study is from the M&A events from Shanghai and Shenzhen stock exchanges' A-share listed companies from 2011 to 2015.Based on the original sample,this paper eliminated the listed companies of financial and insurance industries,the ST listed companies,M&A failure sample,data missing sample,and other sample that not conforms to the conditions.Using descriptive statistics,Pearson correlation analysis and Logit regression analysis and multiple linear regression analysis methods,the following results are concluded:(1)Political connection has a positive effect on mergers and acquisitions,in the context of political connection,enterprises are more inclined to initiate high-frequency mergers and acquisitions;(2)Under the background of political connection,enterprises are more inclined to pay the premium of mergers and acquisitions,and the higher the level of political connection,the higher the premium paid by enterprises;(3)Under the background of political connection,enterprises are more inclined to initiate high-frequency mergers and acquisitions and pay premiums,which leads to the decrease of M&A performance;the higher the level of political connection,the lower the performance of M&A.Combining with the results of this article,the author puts forward the policy suggestions on the following three aspects.First,the government should accelerate the reform of market economy and improve the competition of the market economy mechanism,create a more fair and open market environment,to eliminate the behavior of government to escort some enterprises,which damaged the fair competition environment;Second,the government should also focus on improving enterprise's M&A environment,and create an open and transparent market environment for enterprises,to promote enterprise's better and faster development in the market environment;Finally,for the enterprise itself,enterprise should reduce political connection and focus on the development of the their own business,to actively participate in market competition;at the same time,enterprise should improve the ability of management and investment,and improve the ability to identify the intrinsic value of the enterprise in order to found truly valuable company and pay reasonable price of mergers and acquisitions.