Economic policy uncertainty and merger activity in China

Abstract

The paper intends to analyze the effect of Economic Policy Uncertainty (EPU) on merger and acquisition (M&A) deals, scale, and payment method in China. Based on 3183 M&A deals from 2007 to 2019 in the Chinese financial market, the paper builds some regression models to test the impact of EPU on merger activities. The empirical results imply that M&A deals have a positive relationship with EPU, and state-owned enterprises (SOEs) are more likely to make M&As during periods of high EPU than non-SOEs. Besides, the Belt and Road Initiative significantly promotes M&A activities. EPU has a significant negative effect on the transaction scale of M&A deals, while there is no evidence that it has significant influence on the payment method. The findings provide further evidence of EPU’s relationship with M&A and enrich the discussion of EPU’s impact on corporate decisions.