The Motivation And Economic Consequences Of Government Intervention In Corporate Mergers And Acquisitions

The relationship between governments and enterprisesis a hot topic of academic researchandan important part of the national governance system.This article usesBaoneng Group's acquisition of CSG and Vanke to investigate the relationship between stakes of local government and consequences of mergers and acquisitions.Baoneng Group takes 11 months to gain the control rights of CSG for 11 and finally holds 25.05% shares of CSG.Then Baoneng Group successfully dismisses all existing directors of CSG in January 2016.It takes BaonengGroup 18 months to acquire 25.04% shares of Vanke and the monetary cost is about 44 billion.However,Baoneng Group doesn't have any representative in Vanke's board of directors.And since April 2018,Baoneng gradually sold its shares in Vanke.This paper analyzes the impact of local government interests on the two mergers from the ex ante and ex post perspective.From theex anteperspective,this paperuses two ratios to measure Shenzhen's dependence on CSG and Vanke:(1)the ratio of the total revenues to the GDP of Shenzhen;(2)the amount of tax paid by the company to the total taxation of Shenzhen.The results show that Vanke has a pivotal role in the fiscal system of Shenzhen Municipal Government.If Vanke's operation deteriorates,it will seriously damage the interests of the Shenzhen Municipal Government.Therefore,it is impossible for local government to have nothing to do when Baoneng's controlmay do harm to Vanke's operation.In contrast,the economic importance of CSG is minor relative to that of Vanke,so the Shenzhen Municipal Government has less incentive to intervene Baoneng's acquisition of CSG.From theex postperspective,the main discussion is about the changes in the operating performance and market value of the two companies after the acquisitions.The results show that afterBaoneng's entry,CSG's profitability declined in 2015.After the Shenzhen Metro Group entered Vanke,Vanke's capabilities were not affected and remained a healthy trend.From the perspective of ex post,local government benefits from theintervention of Baoneng's acquisition of Vanke,and minority shareholders also benefit.From the perspective of direct economic consequences,the Shenzhen Metro Group has gained generous investment income in terms of book gains and cash dividends without loss of market value.Extant studies mainly focus on the grabbing hand of local governments.This paper provides evidence for the supporting hand of local governments induced by their own interests from the perspective of mergers and acquisitions and enriches the research on government-enterprise relationship.