Property rights protection and mergers and acquisitions

This paper examines the impact of property rights protection on mergers and acquisitions (M&As). To establish causality, we exploit the plausibly exogenous variation generated by the enactment of China's 2007 Property Law, which significantly strengthened the protection of tangible property rights. We document that firms display a higher probability of announcing M&A bids after the law's enactment. In addition, firms with higher asset tangibility exhibit greater (less) likelihood of initiating cash-financed (stock-financed) M&A bids. Further, our findings suggest that increased product market competition and improved access to finance are two plausible underlying economic mechanisms through which property rights protection affects corporate takeovers. Taken together, this paper provides new insight into the real effect of property rights protection on the market for corporate control.