Cross-Border M&A Targets Of Foreign Enterprises In China:cherries Or Lemons?

In an era of economic globalization,economic activities among countries are becoming more and more frequent.A growing number of enterprises enter the host country through outward FDI.As an important way of foreign direct investment,cross-border M&A plays an important role.Enterprises could obtain the transferable advantages and non-transferable advantages of the merged enterprises through cross-border M&A activities.The transferable advantages refer to the innovative technologies,patents of the enterprises ect..The non-transferable advantages refer to the sales channels and export networks of enterprises.In such a fierce market competition,what kind of M&A targets that enterprises seek under the condition of increasingly frequent mergers and acquisitions activities?This is the problem to be explored in this article.From the perspective of the target companies,this paper mainly discusses the following three issues:First,how companies choose their target enterprises in cross-border M&A activities,whether they choose strawberries(enterprises with extensive export networks and high productivity)or lemons(narrow export networks or no export and Low productivity)?Second,what kind of impacts do the target firms' financing constraints have on its mergers and acquisitions activities,positive effect,negative effect or none?Third,what is the different characteristics of a target between domestic mergers and acquisitions and cross-border mergers and acquisitions?Based on the above questions,this paper uses the data of China Industrial Enterprise Database from 1999 to 2007.We use the mixed logit regression model after controlling the enterprise's characteristic variables such as capital density,scale of the firms,and the empirical result shows that the target enterprises' export networks and total factor productivity have a positive effect on M&A activities.Companies with high productivity and extensive export networks are more likely to become M&A targets("cherries")for multinationals when they are negatively affected by changes in productivity.As a non-transferable advantage of target companies,export network has a positive role in cross-border M&A activities.That is,foreign companies prefer to merger and acquire target companies with more non-transferable advantages.The target enterprises' export networks have identity due to their geographical location and have a negative effect on domestic M&A activities.In addition,we take the financing constraints into our M&A research and find that the financing constraints also have a positive effect on cross-border M&A activities.That is,the enterprises with less limited financing constraints are more likely to be merged and acquired by foreign enterprises,which further proves that multinational corporations choose to merge the target enterprises that are "cherries".