FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.

posted on 06 May 2016

China Buys Into Corporate Mergers, And Proves Better At It Than The West

from The Conversation

-- this post authored by Wilfred Dolfsma, Loughborough University

Alongside China's booming economy and the country's appetite for steel, concrete, copper and other construction materials, the last decade has demonstrated that not only can China consume materials, but its corporations are also capable of gobbling up companies around the world.

Like other large national and multinational firms worldwide, Chinese firms have now entered the market for corporate control through mergers and acquisitions (M&As) with rivals. The number of mergers in just the first few months of 2016 has already matched 2015's record year, at a value of US$106 billion.

The nature of mergers and acquisitions is that they tend to come in waves. For example, the third wave of mergers between the mid-1960s and 1980s saw companies buy into different markets through mergers to diversify and strengthen their positions. The fourth wave during the 1990s saw corporations grow through mergers with rivals in the same field into mega-corporatons. The most recent, sixth wave between 2003 and 2008, only now being documented by us, saw for the first time Chinese firms begin to actively participate in corporate takeovers.

As markets globalise, so does the market for corporate control. Mergers and acquisitions, traditionally seen only as an aspect of the Western economic sphere centred on the US and Europe, has now also gone global as companies themselves - and not just their products and services - are traded worldwide.

However, the majority of mergers and acquisitions tend to actually destroy market value: stock market values tend to decline dramatically after a merger is announced. Yet managers and shareholders continue to be lured into this mostly irrational, exuberant activity. Now Chinese firms are dominating this market, there is good reason to study how Chinese acquisitions fare.

Is this the Chinese century? manostock

In our research, due for publication in the journal Management & Organization Review, Killian McCarthy of Groningen University and I found that the deals Chinese managers make perform better financially than those arranged by their opposite numbers in Europe and the US. The reasons for this better performance are still somewhat unclear.

Chinese M&A deals by nature are more often cross-border. They are also more likely to be hostile takeovers. This should bode ill for their prospects to create value, available research centring on Western economies suggests, as the employees in the acquired firm will not welcome being directed by unfriendly outsiders. Yet the opposite is true for acquisitions by Chinese firms: on average, Chinese firms acquiring other firms see their stock market value increase more than any other firm. Why? Our research offers some suggestions - but they are only suggestions, because the data typically collected about M&A deals is statistical, and includes little information about the human factors in how deals are drawn up and agreed.

One explanation for why Chinese corporate players forge better M&A deals than those in the West is a combination of more close, "personal" attention to the deals and to those individuals making them. At the same time, they are also more willing to walk out of a deal. In Western firms, often it is the ego and bonuses of chief executive officers that prevent careful consideration of the true value of deals, leading corporations to proceed with deals that they should have walked away from or negotiated better terms for. Deals by Chinese players take longer to conclude, and may involve more due diligence, yet are also more likely to be suddenly cut short.

In another piece of as-yet unpublished research, we show that Chinese companies acquiring US and UK companies do better than those acquiring companies from continental Europe. Chinese managers appear to find it easier to deal with partners that have the more singular focus on market value that exists in an Anglo-Saxon context.

As Chinese firms are no longer content to merely produce goods commissioned by their Western customers, they enter and reshape global markets including the one in which corporations themselves are bought and sold. The cult of the magical, essential chief executive that is prevelant in the West is emerging in China, too, and this may start to have a negative effect on Chinese M&A performance in the future. At least for now, Chinese managers seem able to do well in this market, although once the lowest-hanging fruit has been picked, they may find it more difficult to achieve the same value in the future.

The ConversationWilfred Dolfsma, Professor of Innovation and Entrepreneurship, Director of the Glendonbrook Institute for Enterprise Development, Loughborough University

This article was originally published on The Conversation. Read the original article.

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical Investing Post Listing

Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.

You can also comment using Facebook directly using he comment block below.

Econintersect Investing


Print this page or create a PDF file of this page
Print Friendly and PDF

The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.

Take a look at what is going on inside of
Main Home
Analysis Blog
Democratic Development Lowers the Cost of Credit
Is Growing Household Debt An Economic Counter-Dynamic?
News Blog
'I Can Live With Either One': Palestine, Israel And The Two-state Solution
Where Snapchat's Users Come From
What We Read Today 26 February 2017
INAUGURATION DAY: A Bad Lip Reading Of Donald Trump's Inauguration
Did The Dodd-Frank Act Make The Financial System Safer?
A Close Look At The Decline Of Homeownership - Part Five Of Five
Do Institutional Investors Chase Returns?
Infographic Of The Day: How To Survive A Deadly Snake Bite
Early Headlines: Global Mfg 1970-2010, No Refugee Spike, GOP Health Proposal Leak, GOP Town Halls, Trump's Debt Decrease, Macron Gains, China's $9 Trn Moral Hazard, Americans Oppose Wall And More
Premium Seats At Premium Events Equal Premium Prices
Earnings And Economic Reports: Week Starting 27 February 2017
Time Crystals: How Scientists Created A New State Of Matter
Cost Of War Against ISIS Reaches 11 Billion Dollars
Investing Blog
Snapchat Is In The Money Burning Business
Technical Thoughts: How To Buy The Dips
Opinion Blog
Why Winning The French Presidential Election Could Be A Poisoned Chalice
Unintended Consequences Of Corporate Tax Incentives
Precious Metals Blog
Deflation And Gold: A Contrarian View
Live Markets
24Feb2017 Market Close: Wall Street Rose From Session Lows To Close In The Green Near The Unchanged Line, Short-Term Indicators And Analysts Questioning Continuing Bull Run
Amazon Books & More

.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Middle East / Africa
USA Government



Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day


Asia / Pacific
Middle East / Africa
USA Government

RSS Feeds / Social Media

Combined Econintersect Feed

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution



  Top Economics Site Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2017 Econintersect LLC - all rights reserved