Goodwill Bubbles in Emerging Markets: Can Clan Culture Serve as an Informal Circuit Breaker?

This paper takes Chinese A-share listed companies from 2012 to 2024 as the research sample to examine the governance effect of clan culture, a local informal institution, on excess goodwill from mergers and acquisitions (M&As). The study finds that enterprises located in regions with a stronger clan culture have a significantly lower level of excess goodwill generated in M&As. Mechanism tests reveal that clan culture operates through two channels: by easing financing constraints, it curbs managers’ incentive to signal growth via high-premium acquisitions, thereby reducing M&A premiums; and by attracting analyst coverage and improving information transparency, it mitigates managerial opportunism in M&A pricing. The moderating effect test shows that digital transformation amplifies the governance role of clan culture by improving the enforceability of reputation-based constraints, while family control weakens this effect by alienating clan networks and turning them into instruments for private benefit heterogeneity analysis reveals that the mitigating effect is more pronounced for non-state-owned enterprises, firms with lower audit quality, M&As with performance commitments, non-green M&A transactions, firms with limited M&A experience, firms in the decline stage of their life cycle, and firms located in southern China. Economic consequence tests demonstrate that by suppressing excess goodwill, clan culture significantly enhances firms’ long-term market value, improves future performance stability, reduces financial distress risk, and promotes stronger social responsibility performance.