Post-Takeover Financing Activities under Financial Repression: Evidence from China


Corresponding author: Oliver M. Rui, China Europe International Business School, 699 Hongfeng Rd, Shanghai 201206, China. Tel: 86-21-28905618, Fax: 86-21-28905620, email:


In China’s state-dominated financial system, many firms, especially non-state-owned or private organizations, face serious restrictions in gaining access to bank and equity market financing. This kind of highly discriminatory financial repression policy has induced some unique post-takeover financing activities, which are consistent with the desire to acquire firms in order to capitalize on their privileges in getting access to external finance. Specifically, takeovers by acquirers facing more serious financing obstacles (private acquirers) tend to show less salient symptoms of tunneling and display patterns of more efficient investment than takeovers by acquirers suffering less serious financing obstacles (state acquirers). Market reaction analysis suggests that these takeovers pose different implications for acquirers’ shareholder value, with takeovers by private acquirers being viewed as value enhancing but takeovers by state acquirers being viewed as value reducing.