Does Political Corruption Affect Mergers and Acquisitions Decisions? Evidence from China

We examine whether political corruption impedes mergers and acquisitions (M&As) decisions. Using a comprehensive sample of Chinese firms, we find that corruption has a substantial, negative relation with the firm acquisitiveness. Further evidence suggests that the impact is more pronounced when firms are non-state-owned and with poor liquidity levels, while attenuated by the Anti-corruption Campaign in 2012. Our results exist after a series of robustness tests. Additional tests show that acquirers in more corrupt districts create less shareholder wealth. Overall, the evidence is consistent with the hypothesis that firms manage liquidity to seek political favors, and supports the notion that corruption reduces social welfare by impeding M&A