Do Corporate Consolidations Affect the Competitive Positioning of Non-Financial Firms in China?

Abstract

In a quest for economies of scale, access to technologies, and, most importantly, expansion of market share, Chinese public companies have been engaged in several consecutive waves of mergers and acquisitions (M&As) involving mostly domestically domiciled non-listed targets from the same or adjacent industries. Relying on a comprehensive panel dataset of 7,998 transactions completed between 1993 and 2020 by 2,842 publicly listed acquirers domiciled in China, the paper attempts to establish whether M&A deals allow acquirers to improve their market share and, consequently, their relative market position. We use dynamic panel regression and ordered logit models to establish and quantify the link between deal characteristics and the post-deal market share of the combined entities. Our empirical findings demonstrate that corporate consolidations exercise no significant impact on the relative competitive positioning of firms. Only acquisitions by industry leaders produce a sizeable increase in the latter’s market share and lead to higher industry concentration. Most consolidations occur among outsiders exhibiting a high degree of similarity, relatively lower profitability, and stagnant market shares within the more competitive industries with higher rates of firm creation. These consolidations, often in the form of mergers, are not effective in advancing the combined entities’ competitive positioning. Despite the fact that the bulk of corporate consolidations appears unlikely to constitute a threat to competition in the medium term, careful regulatory oversight may be warranted within the currently fragmented and highly commoditized industries, which appear likely to consolidate at the fastest pace. JEL Classification: G30, G32.