An Analysis On Institutional Distance And Cross-border M&A Performance Of Chinese Listed Companies

With the rapid development of China's economy,Chinese companies has engaged in overseas operations gradually.In recent years,they have actively participated in international competition and adapted to the trend of globalization.While attracting foreign direct investment,the scale of China's OFDI has also shown steady growth.The Belt and Road initiative has further promoted foreign investment.Cross-border mergers and acquisitions have become an important way for Chinese companies to integrate into the"go global" strategies.Through cross-border mergers and acquisitions,enterprises can open up overseas markets,improve supply chains,decrease intellectual property risks,introduce talents and management technologies,etc.At the same time,cross-border M&A of Chinese companies are also facing political and legal uncertainty in the host country,problems led by cultural difference and extended overseas review cycles which can cause companies fail to achieve the desired M&A performance and even failure.Therefore,the analysis of the performance of Chinese enterprises after overseas M&A and the factors affecting their performance will help enterprises to understand the current status of M&A market and identify the country risks,thus improving the M&A plan.This paper selects 292 cross-border M&A events completed between 2010 and 2016 as a sample,measures the cross-border M&A performance of listed companies in China by accounting performance,selects two dimensions of formal and informal institutional distance,analyzes the impact of institutional distance on the performance of cross-border M&A by Chinese companies with the OLS regression method.The results of this study indicate that after industrial adjustment,most of the companies in the sample failed to achieve the expected performance within a two-year period of completion of the merger.In terms of factors affecting corporate performance,the formal institutional distance and the informal institutional distance between the host country and China have a significant impact on corporate performance,but the directions of influence are different.The formal institutional distance between the host country and China has a significant positive correlation with the M&A performance.Enterprises in the country with reasonable rule of law system and efficient government supervision and acquisition are more likely to achieve good M&A results.The informal institutional distance between the host country and China is negatively correlated with the performance of M&A.The greater the differences between two cultures,the greater the difficulties faced by both companies in the process of cultural integration,and the worsening performance of M&A.In addition,the exchange rate level of the host country also has a significant impact on corporate performance.In the RMB-denomated indirect quotation,the higher the exchange rate of the host country,the lower the relative value of the currency,the easier the relative cost of the enterprise,and the easier it is to obtain better performance.Moreover,the cross-border M&A experience and the good operational ability in the early stage help the company to formulate a reasonable and complete M&A plan,and smoothly pass the M&A integration period to achieve the desired M&A performance.Based on the analysis of the sample data and the final regression results,this paper gives suggestions on how to improve the performance of M&A and promote the healthy and rational development of China's cross-border M&A market.Enterprises should overcome blind M&A and fully understand the capabilities and development stages of enterprises.At the same time,it is necessary to take a long-term perspective and prepare for the unsatisfying performance in the short term.Facing the important factors that affect the performance of M&A,the following points need to be noted.First,understanding the governance of the host country and the legal rules of mergers and acquisitions and identifying country risks.Pay attention to the political situation of the host country,follow local laws and regulations,and learn to use relevant policies to protect their legitimate rights and interests.Second,attach importance to M&A integration barriers due to cultural differences between the two countries.Before the merger,the enterprise should have a deep understanding of the cultural characteristics of the host country and the corporate culture of the acquired party,and prepare corresponding management strategies for potential cultural integration risks for the risk of potential cultural integration.Third,rich M&A experience plays an important role in achieving M&A performance.In the absence of their own experience in M&A,third-party agency recommendations cannot be ignored.At the same time,it is necessary to accumulate high-end management talents with an international vision before the merger and acquisition,and promote the integration of enterprises in the later period.Fourth,exchange rate risk cannot be ignored in the process of mergers and acquisitions.The depreciation of the host country's currency is conducive to attracting foreign capital inflows.However,due to the uncertainty of the foreign exchange rate,enterprises may face wide fluctuations in the net cash flow value of their business activities.At the national level,the government's sustained and stable policy guidance and support is crucial to promoting the Chinese enterprises to go global.The government should create a healthy M&A market environment,promote financial system reform,improve capital market construction,improve foreign investment-related systems,and provide institutional guarantees for cross-border mergers and acquisitions.In addition,the Chinese government should strengthen cooperation with the government of host country,develop bilateral relations and enhance cooperation between enterprises of two countries,and guide the two-way flow of funds in an orderly manner.