How China's Silk Road Initiative is Changing the Global Economic Landscape by Yuan Li Markus Taube

Author:Yuan Li, Markus Taube [Yuan Li, Markus Taube]
Language: eng
Format: epub
ISBN: 9780367777555
Barnesnoble:
Publisher: Taylor & Francis
Published: 2021-04-01T00:00:00+00:00

Regression analysis of M&A activities

To quantitatively gauge the effects of the OBOR policy initiative on Chinese outward mergers and acquisitions, we employ Difference-in-Differences setting (DD strategy) to estimate the effect.

We treat years 2012–2013 as the pre-policy period and 2014–2015 as the post-policy period. The two-year post-strategy period may be sufficiently long to incorporate the changes in the overseas acquisition behavioral patterns of the Chinese firms in response to the announcement of the national strategy. Because the firms from the Greater China area (Hong Kong, Taiwan, Macau) may be subject to the effects of the policy initiative for ethnic reasons, we exclude all acquisition deals that involve firms in the Greater China area as acquirers or targets from the sample.

In order to construct a meaningful control group of acquirer countries, we select six other countries that initiated most of the cross-border M&A deals during the sample period, namely, Australia, Canada, Japan, Singapore, United Kingdom and the United States. This further reduces our deal sample to 6717 deals and 127 target countries. The acquirer and target countries are listed in the Online Appendix Table A2.

Since we are interested in aggregate M&A activities, we further construct a yearly aggregate acquirer-target country-pair-balanced panel data sample by aggregating deals according to various criteria specified in the variable description part. Thus, our final aggregate-level sample contains 3556 (7 * 127 * 4) observations.

The difference-in-differences (DD) regression equation is specified as follows:

log(M&A|Dep)ijt=β1|Post*Chinai+Country|PairFE +Year FE         +Contant+εijt (1)

The dependent variable, log(M&A|Dep)ijt, is the logarithm of the number of acquisition initiations or the value of acquisition deals by acquirer country i in target country j in year t. The detailed definition of the dependent variable is summarized in Table 7.1. China is a dummy variable that equals 1 if the acquirer is from China and 0 otherwise. Post is a dummy variable that takes value 1 if the time interval belongs to the post-policy period (2014–2015) and zero otherwise. Year fixed effects capture the effects of macroeconomy, industry, markets and so forth on cross-border acquisitions in a specific year when the aggregate M&A activities take place. As countries’ culture matters in cross-border M&As (Ahern et al., 2015), we introduce the acquirer-target pair fixed effects to capture any bilateral country pair factors that do not change over time (e.g., geographical distance, cultural ties and so on). It is noteworthy that only the interaction terms of Post and Chinai are presented in the regression specification, as the effects of the separate terms of Post and Chinai are absorbed by the year fixed effects and country pair fixed effects, respectively. All the standard errors are clustered at the target country level to account for time-series correlation within each target country.

To more rigorously analyze whether the OBOR Initiative has promoted China’s ODI, we carry out DD regressions to compare the changes in China’s ODI in the Belt-Road countries following the announcement of the national strategy with those in the non-Belt-Road countries, and further compare China’s ODI changes with the changes of six other major acquirer countries.

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