Corporate social responsibility and cross-border M&A by Chinese firms

Xianmin Liu
What is CGR PhD's research about? 
Introducing research projects of CGR PhD members

My research aims to explore the relationship between corporate social responsibility (CSR) and the success of cross-border M&As by Chinese A-share listed firms to extend our understanding of why and how Chinese firms pay more attention to CSR performance in initiating cross-border M&A and going global.

In the last three decades, both the value and number of cross-border mergers and acquisitions (M&A) have soared in waves (Xu, 2017). As a majority of foreign direct investment (FDI) (Albuquerque et al., 2019), cross-border M&As have become more prevalent to gain such as strategic assets, natural resources, market power and synergistic effect. Accordingly, the extant researches in cross-border M&A are also rapidly increasing, especially in emerging market countries like China (Karolyi and Liao, 2017; Li, Li and Wang, 2019; Schweizer, Walker and Zhang, 2019), which is the biggest developing country and overtook Japan as the second-largest economy in the world since 2010. In addition, China is still a transitional nation and has a transformational and proactive government, promoting studies in cross-border M&A under the institutional environment with Chinese characteristics as well.

Source: Thomson Reuters Eikon M&A database, compiled by the author.
Note: Completion rate of cross-border M&A is the ratio of the number of completed cross-border M&A deals recorded by Eikon to the total number of announced cross-border M&A deals. Dotted line of China2 excluded the targets in Hong Kong, Macau and Taiwan, because they are special administrative region (SAR) of China.

However, just as not all efforts have paid off, not all cross-border M&As attempts by Chinese firms turn out to be successful in the past 40 years. Among the top ten countries by GDP in the world, the completion rate of announced cross-border M&As by China has long been lower than that of the whole world for most of the period since 1980, just two years after China started its reform and opening up policy. What’s worse, its completion rate of announced cross-border M&As was even continuously the lowest for many years, especially since 2013 (see Figure 1). Therefore, the success or failure rate of Chinese firms’ cross-border M&A has attracted more attention than ever, whether in the pre- or post-merger stage.

The government is often considered as the dominating promotor of CSR in China (McGuinness, Vieito and Wang, 2017; Guo, Sun and Li, 2009). Meanwhile, the international community has attached great and longstanding importance to sustainable development and CSR, such as climate change, environmental protection, and equal treatment for employees. In this case, Chinese firms need to emphasize more on responsible investments and CSR, especially in the context of cross-border M&A. And my research will also investigate the impacts of some Chinese factors, such state-owned enterprises (SOE), political connection, institutional investors, on Chinese firm’s CSR and cross-border M&A.

References
  • Albuquerque, R., Brandao-Marques, L., Ferreira, M. A. and Matos, P. (2019). International corporate governance spillovers: Evidence from cross-border mergers and acquisitions. Review of Financial Studies. 32(2), pp. 738-770.
  • Guo, J., Sun, L. and Li, X. (2009). Corporate social responsibility assessment of Chinese corporation. International Journal of Business and Management. 4(4), pp. 54-57.
  • Karolyi, G. A. and Liao, R. C. (2017). State capitalism’s global reach: Evidence from foreign acquisitions by state-owned companies. Journal of Corporate Finance. 42, pp. 367-391.
  • Li, J. T., Li, P. X. and Wang, B. L. (2019). The liability of opaqueness: State ownership and the likelihood of deal completion in international acquisitions by Chinese firms. Strategic Management Journal. 40(2), pp. 303-327.
  • McGuinness, P. B., Vieito, J. P. and Wang, M. Z. (2017). The role of board gender and foreign ownership in the CSR performance of Chinese listed firms. Journal of Corporate Finance. 42, pp. 75-99.
  • Schweizer, D., Walker, T. and Zhang, A. R. (2019). Cross-border acquisitions by Chinese enterprises: The benefits and disadvantages of political connections. Journal of Corporate Finance. 57, pp. 63-85.
  • Xu, E. Q. (2017). Cross-border merger waves. Journal of Corporate Finance. 46, pp. 207-231.

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