This study provides a political perspective to corporate acquisitions. We contend that governmental officials wield their influence on firms in order to align corporate actions with their political incentives which vary according to their career stage. To investigate this theory, we examine cross-border acquisitions by Chinese firms during times of subnational political turnovers. We propose that officials at the end of their terms are more risk averse, and therefore, tend to discourage high-risk corporate actions, such as cross-border acquisitions. In a sample of 444 cross-border acquisitions between 2003 and 2014 by listed Chinese firms, we find that during the one-year period leading to political turnover, these acquisitions have lower risk, as manifested in lower stakes sought in targets, more industry relatedness, and smaller institutional distance between the acquirers and the targets. Additional analyses suggest that the reduction in the risk level of cross-border acquisitions during political turnover periods varies by the risk-taking propensity of officials and the influence they could exert on firms in their jurisdiction. By highlighting officials’ political incentives associated with political turnovers, this study presents novel insights into cross-border acquisitions in emerging markets.
Short bio: Jane Lu is Chair Professor at the Department of Management, City University of Hong Kong. She is a Fellow of the AIB and a senior editor of the Journal of World Business. Her research centers on the intersection between organization theory and strategy. Her earlier research investigates broad-level issues that underlie a firm's international strategy. Her recent research continues this line of research with a focus on emerging market firms and their non-market strategies. She has published in many leading journals. She is the President of the Asia Academy of Management.
More information: Leonardo Corbo - leonardo.corbo@unibo.it