State ownership and M&A: evidence from private enterprises in China

We examine how state ownership affects M&A activity in Chinese private enterprises and find that state ownership significantly reduces the M&A activity of private firms. Mechanism tests indicate that state ownership restrains M&A partly because it encourages the separation of the board chair and the CEO. The acquisition-inhibiting effect of state ownership is concentrated in firms with high agency costs, low growth prospects, weak governance, or low managerial ownership. These findings provide new empirical evidence on how government and shareholder structures influence corporate M&A behaviour.