The role of state ownership on acquisition premia: Do Chinese enterprises pay systematically higher acquisition premia?

Abstract: Usually, high acquisition premia are considered to be a proxy for aggressive management style, extremely risk-taking behavior and poor managerial decision making and ultimately failure. In the case of China, it is questionable if this assumption can hold true. In general, cross border M&A failure rate is high and did not vary significantly over time. A study by KPMG found that only 17% of cross-border acquisitions created shareholder value, while 53% of acquisitions destroyed shareholder value or just broke even (KPMG, 2013; Shimizu et al., 2004) How comes that, if profits and appropriate acquisition premia, crucial for success, are extremely hard to generate, still so many Chinese investors acquire European targets? Employing a dataset of 531 Chinese outward cross-border M&As over the period of 1996 to 2017, roughly half of it is conducted by SOE. This paper finds that, on average Chinese MNEs pay higher acquisition premia than other Non-Chinese investors do for similar targets. The question that arises out of these findings is why Chinese investors are willing to pay more than their peers?