Does convenient transportation add value to acquisition targets? Evidence from Chinese M&As

Abstract

Using transportation centrality measures, we examine how the air travel convenience of the bidder and target cities, and their direct connections influence the acquisition bid price. We find that target firms located in cities with greater transportation convenience receive higher bid prices. Propensity score matching and instrumental variable regressions using the infrastructure investments in the city as an instrumental variable also show that bid prices rise with the connectivity of target firms' cities. Additionally, the completion rate of deals is positively associated with the target city's transportation convenience. Although prior studies suggest that direct air connections between bidder and target cities reduce information asymmetry and facilitate acquisitions, we find no significant effect of direct flights or bidder connectivity once the transportation centrality of the target's city is taken into account. Our results highlight the target city's transportation network as a crucial infrastructure that enhances the value the bidder can add to the target company. Despite the high bid prices, acquirers do not receive negative stock price reactions when targeting firms in well-connected cities.