Skip to main content
SpringerLink
Log in
Book cover

Experiences and Challenges in the Development of the Chinese Capital Market pp 89–107Cite as

Palgrave Macmillan

Ownership, Financial Constraints and Firm Performance: Foreign Acquisitions of Chinese Firms

  • Chapter

  • 164 Accesses

Abstract

The increasing globalization of business has heightened the opportunities and pressures to engage in cross-border mergers and acquisitions (hereafter, CBM&As) involving transitional economies, which has grown dramatically over the past decades (Shimizu, et al., 2004). In the last few years, the world has witnessed the emergence of China as one of the most significant destinations for CBM&As, which had $2,561.9 billion worth of deals in 2012 (Barris, 2013). Based on the report by the Chinese Ministry of Commerce (Chinese Ministry of Commerce, 2014), there were 22,819 foreign invested companies in China and the foreign capital amount reached $ 1,239.11 billion by the end of 2013. Given its strategic geographical location, Hong Kong was the largest foreign investment partner of China, and their total investment value accounted for 59.23 per cent of the Chinese total foreign investment in 2013.

This is a preview of subscription content, log in via an institution.

Chapter
USD   29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD   84.99
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Hardcover Book
USD   109.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Learn about institutional subscriptions

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  • Allayannis, G. & Mozumdar, A. 2004. The impact of negative cash flow and influential observations on investment-cash flow sensitivity estimates. Journal of Banking & Finance, 28(5), 901–930.

    Article  Google Scholar 

  • Allen, F., Qian, J. & Qian, M. 2005. Law, finance, and economic growth in China. Journal of Financial Economics, 77(1), 57–116.

    Article  Google Scholar 

  • Andrade, G., Mitchell, M. & Stafford, E. 2001. New evidence and perspectives on mergers. The Journal of Economic Perspectives, 15(2), 103–120.

    Article  Google Scholar 

  • Bajona, C. & Chu, T. 2010. Reforming state owned enterprises in China: Effects of WT O accession. Review of Econ orn i c Dyn a m i cs, 13(4), 800–823.

    Google Scholar 

  • Baker, M., Stein, J. C. & Wurgler, J. 2002. When does the market matter? Stock prices and the investment of equity-dependent firms. National Bureau of Economic Research, Cambridge.

    Google Scholar 

  • Barris, M. 2013. Chinese M&4 activity surges. ChinaDaily. Available at: http://usa.chinadaily.com.cn/us/2013-12/25/content_ 17194 700.htm [Accessed November 16 2014].

  • Bris, A. & Cabolis, C. 2008. The value of investor protection: Firm evidence from cross-border mergers. Review of Financial Studies, 21(2), 605–648.

    Article  Google Scholar 

  • Brouthers, K. D. & Brouthers, L. E. 2000. Acquisition or greenfield start-up? Institutional, cultural and transaction cost influences. Strategic Management Journal, 21(1), 89–97.

    Article  Google Scholar 

  • Brown, S. J. & Warner, J. B. 1985. Using daily stock returns: The case of event studies. Journal of Financial Economics, 14(1), 3–31.

    Article  Google Scholar 

  • Buckley, P. J., Clegg, J. & Wang, C. 2007. Is the relationship between inward FDI and spillover effects linear? An empirical examination of the case of China. Journal of International Business Studies, 38(3), 447–459.

    Article  Google Scholar 

  • Chen, D., Ding, S. & Wu, Z. 2014. Effect of foreign ownership on cost of borrowing: Evidence from small and medium-sized enterprises in China. International Small Business Journal, 32(6), 693–715.

    Article  Google Scholar 

  • Cheng, L. K. & Kwan, Y. K. 2000. What are the determinants of the location of foreign direct investment? The Chinese experience. Journal of International Economics, 51(2), 379–400.

    Article  Google Scholar 

  • Cheung, K.-Y. & Lin, R 2004. Spillover effects of FDI on innovation in China: Evidence from the provincial data. China Economic Review, 15(1), 25–44.

    Article  Google Scholar 

  • Chinese Ministry of Commerce. 2014. Statistics on FDI in China. [Online]. Available at: http://img.project.fdi.gov.en//21/1800000121/Fue/201410/2014102703005 49332341.pdf [Accessed November 17 2014].

  • Chow, C. K. W. & Fung, M. K. Y. 1998. Ownership structure, lending bias, and liquidity constraints: Evidence from Shanghai’s manufacturing sector. Journal of Comparative Economics, 26(2), 301–316.

    Article  Google Scholar 

  • Ciaessens, S., Feijen, E. & Laeven, L. 2008. Political connections and preferential access to finance: The role of campaign contributions. Journal of Financial Economics, 88(3), 554–580.

    Article  Google Scholar 

  • Cleary, S. 1999. The relationship between firm investment and financial status. The Journal of Finance, 54(2), 673–692.

    Article  Google Scholar 

  • Cleary, S., Povel, P. & Raith, M. 2007. The U-shaped investment curve: Theory and evidence. Journal of Financial and Quantitative Analysis, 42(01), 1–39.

    Article  Google Scholar 

  • Cybo-Ottone, A. & Murgia, M. 2000. Mergers and shareholder wealth in European banking. Journal of Banking & Finance, 24(6), 831–859.

    Article  Google Scholar 

  • Di Giovanni, J. 2005. What drives capital flows? The case of cross-border M&A activity and financial deepening. Journal of International Economics, 65(1), 127–149.

    Article  Google Scholar 

  • Ding, S., Guariglia, A. & Knight, J. 2013. Investment and financing constraints in China: Does working capital management make a difference? Journal of Banking & Finance, 37(5), 1490–1507.

    Article  Google Scholar 

  • Erel, I., Liao, R. C. & Weisbach, M. S. 2012. Determinants of cross-border mergers and acquisitions. The Journal of Finance, 67(3), 1045–1082.

    Article  Google Scholar 

  • Fazzari, S., Hubbard, R. G. & Petersen, B. C. 1988. Financing constraints and corporate investment. National Bureau of Economic Research, Cambridge.

    Google Scholar 

  • Fazzari, S. M., Hubbard, R. G. & Petersen, B. C. 2000. Financing constraints and corporate investment: Response to Kaplan and Zingales. National Bureau of Economic Research, Cambridge.

    Google Scholar 

  • Francis, B. B., Hasan, I. & Sun, X. 2009. Political connections and the process of going public: Evidence from China. Journal of International Money and Finance, 28(4), 696–719.

    Article  Google Scholar 

  • Guariglia, A., Liu, X. & Song, L. 2011. Internal finance and growth: Microeconometric evidence on Chinese firms. Journal of Development Economics, 96(1), 79–94.

    Article  Google Scholar 

  • Guariglia, A. & Yang, J. 2012. A balancing act: managing financial constraints and agency costs to minimize investment inefficiency in the Chinese market. Working paper, University of Birmingham.

    Google Scholar 

  • Héricourt, J. & Poncet, S. 2009. FDI and credit constraints: Firm-level evidence from China. Economic Systems, 33(1), 1–21.

    Article  Google Scholar 

  • Hadlock, C. J. & Pierce, J. R. 2010. New evidence on measuring financial constraints: Moving beyond the KZ index. Review of Financial studies, 23(5), 1909–1940.

    Article  Google Scholar 

  • Harrison, A. E. & Mcmillan, M. S. 2003. Does direct foreign investment affect domestic credit constraints? Journal of International Economics, 61(1), 73–100.

    Article  Google Scholar 

  • Hubbard, R. G., Kashyap, A. K. & Whited, T. M. 1995. Internal finance and firm investment. National Bureau of Economic Research, Cambridge.

    Google Scholar 

  • Kang, J.-K. 1993. The international market for corporate control: Mergers and acquisitions of U.S. firms by Japanese firms. Journal of Financial Economics, 34(3), 345–371.

    Article  Google Scholar 

  • Kaplan, S. N. & Zingales, L. 1997. Do investment-cash flow sensitivities provide useful measures of financing constraints? The Quarterly Journal of Economics, 169–215.

    Google Scholar 

  • Lamont, O., Polk, C. & Saa-Requejo, J. 2001. Financial constraints and stock returns. Review of Financial Studies, 14(2), 529–554.

    Article  Google Scholar 

  • Li, H., Meng, L., Wang, Q. & Zhou, L.-A. 2008. Political connections, financing and firm performance: Evidence from Chinese private firms. Journal of Development Economics, 87(2), 283–299.

    Article  Google Scholar 

  • Lin, C., Ma, Y., Malatesta, P. & Xuan, Y. 2011. Ownership structure and the cost of corporate borrowing. Journal of Financial Economics, 100(1), 1–23.

    Article  Google Scholar 

  • Lin, H.-C. M. & Bo, H. 2012. State-ownership and financial constraints on investment of Chinese-listed firms: New evidence. The European Journal of Finance, 18(6), 497–513.

    Article  Google Scholar 

  • Mackinlay, A. C. 1997. Event studies in economics and finance. Journal of Economic Literature, 35(1), 13–39.

    Google Scholar 

  • Markides, C. & Oyon, D. 1998. International acquisitions: Do they create value for shareholders? European Management Journal, 16(2), 125–135.

    Article  Google Scholar 

  • Markides, C. C. & Ittner, C. D. 1994. Shareholder benefits from corporate international diversification: Evidence from US international acquisitions. Journal of International Business Studies, 25(2), 343–366.

    Article  Google Scholar 

  • Matlay H., Hussain, J. & Millman, C. 2006. SME financing in the UK and in China: A comparative perspective. Journal of Small Business and Enterprise Development, 13(4), 584–599.

    Article  Google Scholar 

  • Morck, R. & Yeung, B. 1992. Internalization: An event study test. Journal of International Economics, 33(1-2), 41–56.

    Article  Google Scholar 

  • Newburry, W. & Zeira, Y. 1997. Generic differences between equity international joint ventures (EIJVs), international acquisitions (IAs) and international green-field investments (IGIs): Implications for parent companies. Journal of World Business, 32(2), 87–102.

    Article  Google Scholar 

  • Rossi, S. & Volpin, P. E 2004. Cross-country determinants of mergers and acquisitions. Journal of Financial Economics, 74(2), 277–304.

    Article  Google Scholar 

  • Schiantarelli, E 1995. Financial constraints and investment: A critical review of methodological issues and international evidence. Conference Series-Federal Reserve Bank of Boston, 39, 177–214.

    Google Scholar 

  • Shimizu, K., Hitt, M. A., Vaidyanath, D. & Pisano, V. 2004. Theoretical foundations of cross-border mergers and acquisitions: A review of current research and recommendations for the future. Journal of International Management, 10(3), 307–353.

    Article  Google Scholar 

  • Shleifer, A. & Vishny, R. W. 1994. Politicians and Firms. The Quarterly Journal of Economics, 109(4), 995–1025.

    Article  Google Scholar 

  • Sun, H. 1998. Macroeconomic impact of direct Foreign investment in China: 1979–96. World Economy, 21(5), 675–694.

    Article  Google Scholar 

  • Wu, W., Wu, C. & Rui, O. M. 2012. Ownership and the value of political connections: Evidence from China. European Financial Management, 18(4), 695–729.

    Article  Google Scholar 

  • Wurgler, J. 2000. Financial markets and the allocation of capital. Journal of Financial Economics, 58(1), 187–214.

    Article  Google Scholar 

  • Xu, N., Xu, X. & Yuan, Q. 2013. Political connections, financing friction, and corporate investment: Evidence from Chinese listed family firms. European Financial Management, 19(4), 675–702.

    Article  Google Scholar 

  • Zhang, K. H. & Song, S. 2001. Promoting exports: The role of inward FDI in China. China Economic Review, 11(4), 385–396.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Nottingham University Business School, China

    Yuhuilin Chen

  2. Centre for Global Finance, Nottingham University Business School China, 199 Taikang East Road, Ningbo, 315100, China

    Xiuping Hua

Authors
  1. Yuhuilin Chen
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Xiuping Hua
    View author publications

    You can also search for this author in PubMed Google Scholar

Editor information

Editors and Affiliations

  1. Schulich School of Business, York University, Canada

    Douglas Cumming (Professor and Ontario Research Chair) (Professor and Ontario Research Chair)

  2. University of Birmingham, UK

    Alessandra Guariglia (Professor of Financial Economics) (Professor of Financial Economics)

  3. The University of Edinburgh Business School, UK

    Wenxuan Hou (Reader in Finance) (Reader in Finance)

  4. Manchester Business School, UK

    Edward Lee (Professor of Accounting and Finance) (Professor of Accounting and Finance)

Copyright information

© 2015 Yuhuilin Chen and Xiuping Hua

About this chapter

Cite this chapter

Chen, Y., Hua, X. (2015). Ownership, Financial Constraints and Firm Performance: Foreign Acquisitions of Chinese Firms. In: Cumming, D., Guariglia, A., Hou, W., Lee, E. (eds) Experiences and Challenges in the Development of the Chinese Capital Market. Palgrave Macmillan, London. https://doi.org/10.1057/9781137454638_5

Download citation

Publish with us

Policies and ethics

Search

Navigation