Political connections with corrupt government bureaucrats and corporate M&A decisions

a natural experiment from the anti-corruption cases in China

Qigui Liu, Tianpei Luo, Gary Tian*

*Corresponding author for this work

Research output: Contribution to journalArticle

18 Citations (Scopus)


Using 29 recent high level anti-corruption cases in China as a natural experiment, we examine the patterns in merger and acquisition (M&A) decisions and performance in Chinese non-state owned enterprises (non-SOEs) before and after the exogenous severing of political connections. We identify a set of listed related non-SOEs whose managers bribed or had connections, through past working and educational experience, with corrupt bureaucrats from 2005 to 2011. We document that, after the arrest of corrupt bureaucrats, corruption related non-SOEs lose their competitive advantages in the M&A market. We observe a significant reduction in the likelihood of conducting M&As and the ability to access local and state-owned targets for these firms. They pay a higher takeover premium and consequently have worse post-M&A performance. Our results are robust when we exclude bribing firms, and firms whose related corrupt bureaucrats are arrested within a year before the announcement of the M&A. Furthermore, the influence of anti-corruption events varies across regions that have different levels of corruption index and industries with different levels of government support and competition. Overall, our study provides direct evidence to the question of why firms seek to establish connections with government officials through bribery or personal connections, and we reveal the benefits and costs of such connections.

Original languageEnglish
Pages (from-to)52-80
Number of pages29
JournalPacific-Basin finance journal
Publication statusPublished - Apr 2016
Externally publishedYes


  • Political connections
  • Anti-corruption
  • M&A
  • M&A performance

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