Getting the Deal Done

李家濤 | LI, Peixin | WANG, Baolian

Recently, the amount of outward foreign direct investment from emerging economies has been growing at a rapid pace, with numerous state-owned enterprises (SOEs) being part of the process. State ownership affects not only the resources a company can access and its motivations, it also impacts its opaqueness, i.e., the unavailability of credible, firm-level information to stakeholders. Opaqueness can occur when a firm does not disclose information, or when the disclosed information cannot be validated or certified. Often more opaque than other types of firms, SOEs opaqueness tends to generate resistance when SOEs look to make cross-border acquisitions (CBAs). This opaqueness can also aggravate concerns over an SOE’s semi-political nature and its susceptibility to agency problems, resulting in it being harder to gain legitimacy.

SOEs’ characteristics influence their internationalization strategies and the reception they get in host countries. Prior studies on the subject have focused primarily on the globalisation of privately-owned enterprises; however, because of the disparity between SOEs and non-SOEs, any findings based on privately-owned firms are less than fully applicable to the emerging phenomenon of SOE globalisation, particular in the case of new state-owned multinationals from emerging and transition economies.

With this in mind, a recent study by Jiatao Li, Peixin Li, and Baolian Wang looked to address two research questions. First, “Do SOEs suffer more from the liability of opaqueness in CBAs?” Second, “Can opaqueness explain the difference between the CBA completion rates of SOEs and other firms?” The authors wanted to test the hypothesis that opaqueness does indeed explain many phenomena associated with the CBAs of Chinese acquirers.

To go about answering these questions, a sample of CBAs attempted by Chinese firms was studied. China was chosen because of its very different political institutions and general opaqueness of its SOEs. Specifically, data on CBAs from 1990–2010 were collected from the SDC Platinum Database of Thomson Financial. The data for each transaction included information on both the target and acquiring firm (e.g., their industries, listing status, listing exchange(s) if listed, and ownership status) and the characteristics of the transaction (e.g., deal size, whether the acquirer employed any financial advisor, the attitude of the target, the percentage of ownership sought by the acquirer, and the payment method). Only transactions in which the acquirer was a Chinese firm were considered, while recapitalisations, repurchases, sales of minority interests, spin-offs, and deals classified as rumours were ignored. As the focus was on deal completion, 40 deals with unknown outcomes were also removed. After deleting the transactions with missing data, this left a total of 1,170 deals for analysis.

The results showed that “the completion rate for Chinese SOE acquirers was 14% lower than for non-SOEs over the period”. They also found that the difference between SOEs and non-SOEs was smaller when an SOE acquirer could send credible signals by being a publicly-listed company; a difference that was also partially mediated by opaqueness. That said, the authors revealed that “being publicly listed did not help unless the listing was in a developed financial market or the firm hired a reputable auditor. Being publicly listed in Shanghai or Shenzhen, or hiring a little-known auditor did not help reduce the difference in the likelihood of CBA deal completion between SOEs and non-SOEs”.

Despite the findings suggesting that opaqueness may also be very important in understanding the strategy and performance of SOEs’ globalisation efforts, the authors wanted to highlight at least three possible avenues of future research. First, how opaqueness affects other aspects of SOEs’ activities. Second, because the study focused purely on Chinese acquirers, the opaqueness perspective should also be studied in other countries. Third, the opaqueness measures used in the study had their limitations. Therefore, measures on different dimensions of opaqueness should be created, such as on financial information or corporate governance.


Lee Quo Wei Professor of Business, Chair Professor, Director of Center for Business Strategy and Innovation