The targets of state capitalism: evidence from M&A deals

- Government-controlled firms are expanding in the market for corporate control (MCC).
- State-owned enterprises (SOEs) buy lower performing targets than private acquirers.
- State-invested enterprises (SIEs) and privates show similar targeting strategies.
- This suggests that SIEs do not internalize political objectives, while SOEs do.
- The MCC efficiency is not affected by the increasing activity of SOEs and SIEs.

Over the last decade, particularly after the Great Recession, state-owned enterprises (SOEs) have been expanding their role in the global economy, including through merger & acquisitions (M&As). What are the characteristics of the firms targeted by SOEs? Are they different from firms controlled by private investors? By looking at a unique sample of around 25,000 M&As occurred over the period 2005-2012, we find that only SOEs controlled by means of minority of stakes (state-invested enterprises, SIEs) do not show any statistically significant difference in their targeting strategy compared to private enterprises. Conversely, majority-owned SOEs, and in particular financial SOEs buy lower performing firms compared to private acquirers. We interpret this fact as evidence of the internalization of political objectives by fully controlled and financial SOEs, but not by SIEs.