Economic policy uncertainty and mergers and acquisitions: Evidence from China

• Published in: Economic modelling Vol. 89; pp. 590 - 600
• Main Authors: Sha, Yezhou, Kang, Chenlei, Wang, Zilong
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01.07.2020
• Subjects: China; Economic policy uncertainty; Event study analysis; Mergers and acquisitions; G34; Economic policy uncertainty; Mergers and acquisitions; Event study analysis; G38; China
• ISSN: 0264-9993; 1873-6122
• DOI: 10.1016/j.econmod.2020.03.029

This study examines the relationship between economic policy uncertainty and mergers and acquisitions (M&As) in China. Using all listed Chinese companies on the Shanghai and Shenzhen Stock Exchanges as well as 4188 ​M&A deals from the period of 2001–2018, we show that Chinese firms are more likely to make acquisitions during periods of high economic policy uncertainty, which contradicts the behavior of US firms. We further show that state-owned enterprises (SOEs) are less likely than non-SOEs to make acquisitions during periods of high economic policy uncertainty. SOEs are less likely to use only cash for their acquisitions during periods of high economic policy uncertainty. These results indicate the prudence of SOEs regarding acquisitions relative to non-SOEs during periods of high economic policy uncertainty. Moreover, acquisitions during periods of high economic policy uncertainty are associated with an increase in shareholder wealth for acquirers, and this wealth effect is more pronounced for SOEs. •We examine the relationship between economic policy uncertainty and mergers and acquisitions (M&A) in China.•Firms in China are more likely to make acquisition during periods of high economic policy uncertainty, which contradicts the behavior of US firms.•State-owned enterprises (SOEs) are less likely than non-SOEs to make acquisitions during periods of high economic policy uncertainty.•SOEs are also less likely to use only cash for their acquisitions during periods of high economic policy uncertainty.•Acquisitions during periods of high economic policy uncertainty increase shareholder wealth for acquirers, in particular, SOE acquirers.