Why Are Chinese MNEs not Financially Competitive in Cross-Border Acquisitions? The Role of State-Ownership

Abstract

While MNEs from emerging markets — and China in particular — tend to pay high acquisition premiums when they engage in cross-border acquisition activity, the determinants of this overbidding are not completely understood. We argue that state ownership is a key factor in explaining the high acquisition premiums paid by emerging-market multinationals. Employing data on 450 Chinese outward cross-border acquisitions over the 1990–2011 period, we find that Chinese state-owned MNEs pay higher acquisition premiums than do non-state-owned MNEs, that this is particularly the case for target firms based in developed-nations, and that state-owned MNEs pay even higher acquisition premiums when they act as parents and employ a privately-owned subsidiary to complete the cross-border acquisition.