The relevance of bilateral political relations between countries for the completion stage premium of cross-border mergers and acquisitions

Abstract

PurposeThe purpose of this paper is to examine the influence of bilateral political relations on the completion stage premium of cross-border mergers and acquisitions(CSPCMA) and the moderating roles of cultural distance, trade openness and the nature of firm ownership for this relationship.Design/methodology/approachBased on a sample of 401 cross-border mergers and acquisitions (M&A) conducted by Chinese companies from 1995 to 2019 in the Statistical Data Center (SDC), this article used weighted least squares (WLS) to empirically test the impact of bilateral political relations between countries on the CSPCMA.FindingsThe better the target country of entry’s bilateral political relations with China, the lower the premium of the transaction price paid by Chinese companies at the completion stage of cross-border M&A. Among the moderators, the study found cultural distance positively moderates the relationship between bilateral political relations between countries and CSPCMA. The degree of trade openness of the target country negatively moderates the relationship between bilateral political relations between countries and CSPCMA. The negative relationship between bilateral political relations between countries and CSPCMA is stronger when the acquirer is a state-owned enterprise (SOE).Originality/valueThe findings of this study not only add to the knowledge about the relationship between bilateral political relations and corporate cross-border M&A premiums, but also have managerial implications for Chinese corporate managers to sustainably reduce corporate cross-border M&A premiums.