Abstract:

In China's state–dominated financial system, stock market listing becomes a channel to help state–owned enterprises to raise external finance. Many enterprises, especially non–state–owned or private ones, face serious restrictions in getting access to bank and equity market financing. This kind of highly discriminative financial repression policy nurtures financing–motivated mergers and acquisitions where the non–listed companies, especially those private ones, make use of acquisitions of block shares in listed companies as a means to get access to equity market. They tend to rush to conduct rights offerings and bank borrowings immediately after being listed. However, the post–acquisition financing activities do not seem to have improved the corporate operational performance of the target companies. State acquired companies with post–acquisition rights offerings exhibit significant declining earnings performance. This suggests that the fund–seeking acquirers do not use the additional funds raised efficiently