Summary:
Since 2009, China has signed bilateral currency swap agreements (BCSAs) with more than 40 countries (regions) to promote global trade and international investments. Existing literature mainly focuses on the promotive effects of BCSAs on global trade, but pays little attention to its impact on cross-border investments. As important investment entities, Chinese firms play a key role in China's “going global” process. Cross-border mergers and acquisitions (M&As) are important means for firms to integrate into the international markets, acquire global resources and cultivate international competitiveness. Despite the fact that the number and amount of cross-border M&A transactions by Chinese firms have grown rapidly, the completion rate is disappointingly low. Whether an announced transaction can be completed is the premise of subsequent integration and realization of M&A value. Termination of a transaction not only makes the value of the M&A vanish, but also causes the firm that initiated the deal to lose money, time, reputation, and other resources. Therefore, exploring feasible ways to improve completion rate of cross-border M&A transactions by Chinese firms is an important issue in the process of China's high-level opening-up. Compared with domestic M&As, cross-border M&As face additional transaction costs related to cross-border capital flows, especially given China's unique capital regulation and foreign exchange administration. From the perspective of transaction costs related to cross-border capital flow, this paper explores the impact of BCSAs on the completion rate of cross-border M&A transactions by Chinese firms. Specifically, we believe that BCSAs can lower costs associated with bilateral relations, foreign exchange supervision, and currency exchange, and therefore improve completion rate of cross-border M&As by Chinese firms. Based on the sample of cross-border M&As initiated by Chinese firms between 2006 and 2020 in SDC database, this paper finds that: (1) BCSAs between China and the countries (regions) where the target companies locate significantly enhance the likelihood of deal completion. (2) The positive effect is more pronounced when China has not established close bilateral cooperation with the country (region) where the target company locates, when outflow of foreign exchange reserve is larger in China, and when the official currency of a target company is not international currency. Further, Chinese firms are more likely to settle transactions in Chinese Yuan (CNY) than other currencies during the swap period. These results support that the primary mechanisms include the reduction of costs associated with bilateral relations, foreign exchange supervision, and currency exchange. (3) BCSAs play a more significant role in transactions initiated by state-owned enterprises, in those involving cash payments, and in those targeting entities in Belt and Road countries (regions), whereas overseas-listed Chinese firms and transactions targeting industries that are sensitive to national security are less affected. This paper makes contributions in the following three aspects. Firstly, this paper enriches the research on the consequences of BCSAs from the perspective of cross-border investments. While existing literature has focused on the role of BCSAs on trade and CNY internationalization, and a small body of literature has found that BCSAs affect the scale and density of China's outbound investments, this paper emphasizes the important role of BCSAs in the completion of cross-border M&A transactions and provides evidence on the benefits of expanding the scope of BCSAs. Secondly, this paper reveals the mechanisms of China's BCSAs affecting cross-border M&A transactions from micro-perspective of Chinese firms. Unlike bilateral investment treaties (BITs), BCSAs can not only promote sound bilateral investment cooperation, but also act as a buffer pool of foreign exchange reserves and facilitate convenient currency exchange between a signing country and China. Transaction-level data used in this paper mitigates the concerns of endogeneity issues and provides empirical evidence for the mechanisms. This paper also shows that BCSAs can promote the usage of CNY in cross-border M&A transactions as settlement currency and thus facilitate the internationalization of CNY. This paper helps evaluate the benefits of BCSA more comprehensively. Finally, this paper supplements key factors in completing cross-border M&A transactions by Chinese firms. Current literature emphasizes the impact of macro uncertainty on cross-border M&A transactions. In addition to bilateral relations, transaction costs related to foreign exchange regulation and currency exchange are important as well. Chinese firms should be alert to these costs before initiating a deal and during the M&A process. Our findings have strong implications for cross-border M&As by Chinese firms. This paper also has important policy implications. On the one hand, China should further expand the scope of BCSAs, especially to the countries (regions) whose currencies aren't international currencies, and build international economic cooperation platform for Chinese firms. On the other hand, it is necessary to guide Chinese firms to fully participate and utilize the benefits of BCSAs to explore the global market and enhance international competitiveness. Further, China can encourage Chinese firms to use CNY through BCSAs for cross-border M&As and accelerate the speed of CNY internationalization.
栗宇丹, 罗炜. 双边货币互换协议与企业跨境并购完成率[J]. 金融研究, 2024, 532(10): 132-150.
LI Yudan, LUO Wei. Bilateral Currency Swap Agreements and Completion of Cross-Border Mergers and Acquisitions. Journal of Financial Research, 2024, 532(10): 132-150.
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