Does financing of Chinese mergers and acquisitions have “Chinese characteristics”?

- We investigate the financing of Chinese mergers and acquisitions (M&As).
- Our sample includes over 6000 domestic and overseas M&A deals from 1997-2014.
- We find no difference between SOEs and non-SOEs in their use of cash financing.
- We find that overseas M&As are significantly less likely to be financed with cash.
- The latter result is consistent with foreign ownership restrictions.

This paper analyzes the financing of Chinese mergers and acquisitions. It is motivated by two issues associated with characteristic features of the Chinese economy. First, foreign ownership restrictions can potentially inhibit Chinese acquiring firms' use of equity to finance overseas M&A deals. Second, the ability of state-owned enterprises (SOEs) to secure favorable loan terms may provide them an incentive to rely more on cash financing. We collate data from four databases to obtain a sample of over 6000 M&A deals that were completed during the 1997-2014 period. We find evidence to support the first supposition but not the second.