Leverage Adjustments, Executive Incentives, and the Market Valuation of Acquisitions Under State Capitalism: Evidence From China

ABSTRACT We examine how state ownership and CEO financial incentives jointly condition the market valuation of acquisition‐related leverage adjustments in 2251 completed M&A deals by Chinese A‐share listed acquirers (2013–2023). Acquirers draw on spare financing capacity at deal completion, with larger leverage increases among underleveraged firms. In the pooled sample, leverage changes are not systematically associated with announcement returns. Within state‐owned enterprises (SOEs), however, this association is more negative at higher CEO financial incentive levels—a pattern concentrated in cash compensation and consistent with incentive‐contingent discounting under soft budget constraints—and is sharpest in the symmetric window around the 2015 SOE pay‐cap reform.