Institutional differences, state ownership and financing decisions: Evidence from Chinese cross-border mergers and acquisitions

Abstract

Using data on Chinese cross-border mergers and acquisitions (M&As) from 2002 to 2022, this paper considers the effects of institutional differences and state ownership on the financing decisions of Chinese cross-border M&As. We find that cultural differences and formal institutional differences have significantly positive effects on internal financing and equity financing. These findings indicate that under the influence of institutional differences, internal financing is the type of financing most favoured by Chinese enterprises engaged in cross-border M&As, followed by equity financing and, finally, debt financing. We document that the financing decision most favoured by Chinese state-owned enterprises is debt financing, whereas the least favoured decision is equity financing. In addition, we find a prominent mediating effect of information asymmetry, which implies that information asymmetry serves as a potential channel through which institutional differences impact the financing decisions of Chinese cross-border M&As.