Influence of political promotion of top managers in state-owned enterprises on the mergers and acquisitions of the enterprises: an empirical study based on the theory of pressure for corporate growth

CHEN Shihua1,2 LU Changchong2 JIANG Guangsheng2 WANG Yaru2

(1.China Corpation Governance Institute, Tianjin University of Finance and Economics)
(2.School of Administratin, Dongbei University of Finance and Economics)

【Abstract】The pressure for corporate growth is faced by all top managers, while for those top managers in state-owned enterprises (SOEs) of China who are “quasi-officials” in nature, this pressure means something completely different: since SOEs bear a lot of policy burdens, “corporate growth speed” has replaced “corporate performance” (i.e. the “scale-oriented” development model commonly adopted by SOEs) which contains a lot of “noises” and become an important criterion for the political promotion of top managers in SOEs. This means that the pressure for corporate growth faced by top managers with different political promotion possibilities varies. Compared with top managers who are less likely to achieve political promotion, those who are more likely to achieve political promotion are under relatively greater pressure for corporate growth. Merger and acquisition (M&A), as one of the important ways to realize rapid growth of enterprises, naturally becomes the best choice for those top managers who are pursuing political promotion. Therefore, this study explores the influence of political promotion of top managers in SOEs on the M&A behaviors of the enterprises based on the theory of pressure for corporate growth. According to the M&A data of listed SOEs during 2004–2013, this study finds that compared with SOEs whose top managers have a low possibility of political promotion, SOEs whose top managers have a high possibility of political promotion are more likely to choose M&A for corporate growth, and tend to pay higher premiums in M&A transactions and face worse long-term M&A performance. Nevertheless, the short-term M&A performance of the two types of SOEs is not significantly different. In particular, for enterprises whose endogenous growth speed is slower (especially when such speed is viewed in connection with the enterprises’ history), namely that the top managers are under greater endogenous pressure for growth, the political promotion of top managers will have stronger influence on the above-mentioned M&A behaviors (i.e. choice of M&A for growth, payment for M&A transactions and M&A performance).

【Keywords】 political promotion of top managers; mergers and acquisitions; pressure for growth; state-owned enterprises; empirical study;


【Funds】 the National Natural Science Foundation of China (71002093, 71172018, 71172120, 71472030, 71533022) the National Social Science Foundation ( 11&ZD153, 12CGL027, 13CGL051) the Postdoctoral Science Foundation of China (20110490766, 2012T50222)

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    [1]. ① The former State Economic and Trade Commission clearly regulated in the Specifications on State-owned Large and Medium Enterprises Building Modern Enterprise System and Strengthening Management (Trial) released in September 2000 that, “State-owned enterprises will no longer implement the administrative levels of Party and Government offices, nor will they determine the treatment for enterprise operators and managers according to the administrative levels of cadres of Party and Government offices, but shall implement measures for managing enterprise operators and managers that can adapted to the requirements of modern enterprise system.” [^Back]

    [2]. ② A research group (2011) of Tianze Economic Research Institute found from the statistics about the previous government that, among 183 officials on vice-ministerial and above levels covering 19 departments and ministries in economic field, 56 of them had experience of working as top managers of SOEs, accounting for nearly 1/3. Among the members of the new leadership of State Council, many of them also once worked as top managers of SOEs, for example, Guo Shengkun, incumbent State Councilor and Minister of Public Security was once General Manager of Chinalco; Wang Yong, incumbent State Councilor was once Vice-General Manager of China Aviation Industry Corporation; Lou Jiwei, incumbent Minister of Finance was once Chairman of China investment corporation, and Miao Yu, incumbent Minister of Industry and Information Technology, was once General Manager of Dongfeng Motor Corporation. [^Back]

    [3]. ③ This study took the first quarter or Q1 (April 1) as the dividing line, i.e. top managers transferred in Q1 (before April 1) of year t, the value for year t-1 was 1, and other years 0; when transferred in Q2, Q3 and Q4 (after April 1) of year t, the values for year t-1 and year t were 1 and other years 0. This measurement method had no substantial influence on the empirical results later obtained by this study. [^Back]

    [4]. ④ The standard for classification of industries was according to the Guidelines for Industry Classification of Listed Companies (2001 Revision) issued by China Security Regulatory Commission. Manufacturing industry used secondary-level code to make classification, other industries used first-level code, and all types of industries were classified into 22 sub-types. [^Back]

    [5]. ⑤ Considering the abnormal influence of potential government intervention on M&A transaction price, this study ruled out the samples of transferring enterprises for free among all the M&A samples. [^Back]

    [6]. ⑥ The standard for classification of industries was according to the Guidelines for Industry Classification of Listed Companies (2001 Revision) issued by China Security Regulatory Commission. Manufacturing industry used secondary-level code to make classification, and other industries used first-level code. In order to prevent potential influence of abnormal data on industrial adjustment, before standardized processing, this study winsorized 1% in each tail to the M&A premium data of each industry in each year. [^Back]

    [7]. ⑦ The equation used by this study to calculate BHAR of a merger and acquiring company i during months [0, T] after M&A: BHARiT = П(1 + Rit) - П(1 + Rpt) , in which, Rit is the return rate of the company i at month t, Rpt is the monthly return rate of corresponding portfolio, T = 0–24, t = 0 means the month of M&A, t=1 denotes one month after M&A, and so on. Learning from the cross-group method used by Li and Zhu (2006) to calculate Rpt : first, based on the tradable market cap of a company in June of year t, they were evenly divided into 5 groups after being sorted in ascending order; second, the above 5 groups were ranked according to the equity book-to-market ratio (equity per share/closing price at end of year) of a company in December of year t-1, and then evenly divided into 5 groups; finally, for 25 groups of companies in any given year, the equal-weighted monthly return rate, i.e. Rpt of each group was calculated. [^Back]

    [8]. ⑧ The specific calculation was as follows: first, based on the industrial standard (manufacturing industry used secondary-level code for classification, and other industries used first-level code for classification), return on total asset (ROA) of each year was standardized; and then deducted the average value of return on total asset (ROA) in two years before M&A (year t-2 and year t-1) from the average value of return on total asset (ROA) in two years after M&A (year t+1 and year t+2), and the result was the variation of return on total asset (△ROA). [^Back]

    [9]. ⑨ Measured as return on total asset (ROA). [^Back]

    [10]. ⑩ Following the practice of existing research (Xu et al., 2013; Dai et al., 2014), through manually looking up on and, information about officials in each province was obtained, and the changes of secretaries (including provincial secretaries, prefectural secretaries and secretaries of districts, etc.) in regions (provinces, prefectures, autonomous prefectures, etc.) where companies were registered were sorted out. By using the method adopted by Li and Zhou (2005), Zhang and Gao (2007), Wang and Xu (2008) and Cao (2013), if the secretary of a region was transferred to another post during January to June of a year, the value for this region in that year was 1, and if transferring of post happened during July to December of a year, the value of this region for the next year was 1 and 0 for other years. [^Back]


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This Article


CN: 11-1235/F

Vol , No. 09, Pages 125-136

September 2015


Article Outline


  • 1 Introduction
  • 2 Theoretical analysis, institutional background and research hypotheses
  • 3 Research design
  • 4 Empirical results and analysis
  • 5 Conclusion and implications
  • Footnote