State ownership, prior experience and performance: a comparative analysis of Chinese domestic and cross-border acquisitions

• DOI: https://doi.org/10.1108/IJAIM-01-2021-0027
• Published date: 16 July 2021
• Date: 16 July 2021
• Pages: 472-491
• Subject Matter: Accounting & finance,Accounting/accountancy,Accounting methods/systems
• Author: Min Du,Frank Kwabi,Tianle Yang

State ownership, prior experience

and performance: a comparative

analysis of Chinese domestic and

cross-border acquisitions

Min Du and Frank Kwabi

Department of Accounting and Finance, Leicester Castle Business School,

De Montfort University, Leicester, UK, and

Tianle Yang

School of Economics, Zhejiang University of Technology, Hangzhou, China

Abstract

Purpose –Drawing on three theoreticalframeworks, this paper aims to examine the effects of state-owned

enterprises (SOEs) and the interaction between SOEs and prior acquisition experienceof Chinese domestic

and cross-borderacquirers.

Design/methodology/approach –Using a sample of 4,116 firms consisting of 3,939 domesticmergers

and acquisitions (M&As) and 177 cross-border M&As over the period 2004–2017, this study adopts both

accounting- and market-based performance measures, namely, return on assets, return on equity and buy-

and-hold abnormal return to analyse the effects of SOEs and the interaction between SOEs and prior

acquisitionexperience on acquirers’performance.

Findings –First, this paper finds SOEs to exert a positiveinfluence on acquirer performance, contrary to

agency theory but in line with the resource-basedview. However, the positive relationship betweenSOEs and

performance appears more pronounced for domestic M&A compared to cross-border M&As. Second, this

study also finds prior acquisitionexperience and the combined effect of SOE and prior acquisition experience

to have a positive and significantbearing on performance.

Research limitations/implications –The limitationof this study is the lack of cross-border M&A data

with all the relevant informationcompared to domestic M&A. Thus, the cross-border M&A sample appears

lower comparedto the domestic M&A sample.

Practical implications –The resultsimply that the moderating role of prior acquisition experienceon the

relationship between SOEs and performance appears to be crucial for cross-border M&A performance

comparedto domestic M&A.

Originality/value –The findings of this study show SOEsincrease performance, contrary to the widely

held viewbased on agency theory that SOEs are inefficient.

Keywords Performance, Mergers and acquisitions, Prior experience, State ownership

Paper type Research paper

1. Introduction

Government ownership of emerging market firms has become an essential part of the global

business landscape (Bruton et al., 2015;Musacchio et al., 2015;OECD, 2016). Emerging-market

Humanities and social science project of the China’s Ministry of Education (grant number

19YJC630158).

IJAIM

29,3

472

Received25 January 2021

Revised16 April 2021

Accepted2 May 2021

InternationalJournal of

Accounting& Information

Management

Vol.29 No. 3, 2021

pp. 472-491

© Emerald Publishing Limited

1834-7649

DOI 10.1108/IJAIM-01-2021-0027

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/1834-7649.htm

governments through their ownership of firms have fuelled domestic industrial consolidation

andemergingmarketfirms’internationalisation through mergers and acquisitions (M&As) in

recent years (Du and Boateng, 2015;Zhou et al., 2015;Luo et al., 2012;Peng et al., 2008). For non-

OECD countries, China has become a top acquiring country amongst non-OECD emerging

countries and leads the pack with 147,000 state-owned enterprises (SOEs), followed by Vietnam

with 3,239, with Russia, India and South Africa having 1,147, 1,097 and 512, respectively.

Moreover, Du and Boateng (2015) have pointed out that the Chinese Government, through its

state ownership tend to motivate firms to undertake M&As transactions by providing tax

rebates, foreign exchange assistance and financial support with M&As activities. The

increasing participation of SOEs in M&A activities may be attributed to an increasing

realisation that governments of emerging markets are the most salient institutions with

resources and capability to influence firm growth and deal with complex challenges in the

market for corporate control (Hoskisson et al., 2000;Peng et al.,2008). However, prior studies

investigating the relationship between SOEs and performance in both developed and emerging

markets have produced mixed results (Shleifer, 1998;Megginson and Netter, 2001;Thomsen

and Pedersen, 2000;Okhmatovskiy, 2010;Stan et al., 2014;Du and Boateng, 2015;Zhou et al.,

2015;Zhou et al., 2017;Xie et al., 2019). On one hand, Calomiris et al. (2010) and Zhou et al. (2015)

found a positive relationship between SOEs and firm performance. On the other hand, Shleifer

and Vishny (1994),Shleifer (1998),Megginson and Netter (2001),Xie et al. (2019) document a

negative relationship between SOEs and firm performance. For example, Xie et al. (2019) found

that state ownership exerts a negative impact on stock return volatility and such volatility-

mitigating impact becomes more significant if the government plays an important role in

corporate decision-making. Other studies such asTian an d Estrin (2008) and Zhou et al. (2017)

suggest a nonlinear relation between stateownership and firm value.

Against the backdrop of mixed and inconclusive results regarding M&A performance,

researchers such as Vermeulen and Barkema (2001),Lei et al. (1996) and Lubatkin (1982)

note that prior acquisition experience may be important in explaining the performance of

M&A. The above is in line with the organisation learning theory which suggests that

organisation behaviouris guided by routines that stem from experience and is importantfor

M&A success (Nelson and Winter, 1982;Haleblian and Finkelstein, 1999;Haleblian et al.,

2006). Yet, as far as we are aware, prior studies have not examined the combined effects of

state ownership and prior acquisitionexperience on performance. However, Chatterjee et al.

(1992) argue that inter-firm differences are caused by the idiosyncrasies of firms’routines,

which often create tensions and clashes due to differences in cultures, structures and

systems, are prevalent with M&A activities,especially those involving SOEs. In the case of

SOEs, we argue that the moderating role of prior acquisition experience may be important

as SOEs have unique structures, cultures and governance systems. It may be argued that

prior acquisition experience may help to alleviate clashes often associated with M&As and

ultimately lower the contractual costs, in that prior experience may expose SOEs to a large

variety of events and ideas and as a result developricher knowledge in M&A activities.

In this study, we depart from prior research and advance our understanding of the effects of

SOEs, prior acquisition experience and the moderating role of prior acquisition experience on

both domestic and cross-border M&A performance. Drawing on three theoretical perspectives,

namely, agency theory, resource-based view and organisational learning theory, we theorise that

SOEs and the combined effect of state ownership and previous acquisition experience may have a

positive effect on M&A performance. Consistent with organisational theory, we argue that the

more experienced an organisation’s members become with a particular strategic action, the more

they learn from past mistakes to succeed in subsequent strategic actions. The above reasoning

appears more interesting to explore in the M&A context because, unlike o ther organisational

Cross-border

acquisitions

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