Prevaluating Technical Efficiency Gains From Potential Mergers and Acquisitions in China’s Coal Industry

Abstract

With the slowdown of its economic growth, China’s domestic coal industry is facing more and more serious overcapacity. Multiple government departments have jointly proposed that the coal industry should undergo mergers and reorganization to ease this overcapacity, enhance industrial concentration, and optimize production layout. This study thus combines the resample slacks-based measure (SBM) model and potential merger gains model to pre-evaluate the gains from potential mergers and acquisitions (M&As) before making any final decision about them. With a focus on prevaluating efficiency gains before potential M&As instead of efficiency gains after them, we take China’s listed companies in the coal mining and washing industry as the research sample. The data used to evaluate the efficiency from potential M&As come from their annual financial reports from 2013 to 2016. Empirical results show that some mergers of listed coal companies lead to improved efficiency, but not all mergers can bring efficiency improvements. We also find that the most efficient companies are not necessarily the best M&A targets, and that companies suitable for M&As are those in the stage of expansion. In addition, the empirical results confirm that combinations between large coal companies and between cross-listing companies are more efficient.