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Purpose This paper looks at state-owned enteprises (SOEs) from the angle of the Market for Corporate Control (MCC) and analyzes in detail the reported rationales of a sample of 355 M&A deals performed by SOEs as acquirers over the period 2002–2012. The aim, after having created a taxonomy of deal motivations, is to empirically test two alternative hypotheses: Deviation versus Convergence of M&A deal rationales between state-owned and private enterprises. Design/methodology/approach The data set is obtained by combining firm-level information from two sources, Zephyr and Orbis (Bureau Van Dijk). A recursive algorithm is developed to infer the ownership nature of the enterprises at the time the deal took place and then we double-check the identity of the global ultimate owner by visual inspection of all the available information. Motivations are analyzed through a case-by-case analysis and classified into several categories, thereby providing a taxonomy of rationales behind SOE M&As and discussing their differences and similarities relative to private firms. Findings More than 60% of the deals performed by SOEs as acquirers are driven by “shareholder-value maximization” motives, similarly to private enterprise acquirers. The other 40% of deals are almost equally spread among three rationales that specifically relate to the role of modern state capitalism in the economy. “Financial distress” motivation, which is the only one clearly deviating from the objectives of profit maximization typical of private ownership, is far less important than the others. Originality Existing literature has mainly focused on private corporate M&A deals or has just disregarded the ownership status of the acquiring firm. This paper focuses on the motivations for SOE deals in order to elaborate a taxonomy of SOE deal rationales and to identify differences and similarities between private corporate firms. Research limitations The paper does not analyze in detail the case studies. Neither does it correlate the evidence with the quality of corporate governance or the quality of institutions in the country. This would be interesting in order to discover whether the alignment of objectives between public and private enterprises is enhanced by certain features of public sector management, as suggested by the OECD (2015) Guidelines. Policy implications The paper suggests some policy implications in terms of reforms of the corporate governance of the SOEs and accountability of their management against clearly stated public missions. It also calls for the need for citizens to be informed in a transparent way about the rationales of major M&A deals when a SOE is on the acquirer side, and the consistency of such rationales with the mission assigned by governments to the enterprises they own. Finally, it underlines that regulatory concerns raised in many countries by the rise of cross-border SOE M&As are in most of the cases unfounded.
6. Concluding remarks
The recent literature on SOEs tends to contradict earlier widely held assumptions about their role in the economy in terms of objectives and performance. The traditional literature tended to look at SOEs as captured by politicians and overall underperforming in comparison to private firms. Some authors, however, most notably for example Musacchio and Lazzarini (2014), point to the emergence of a new form of state capitalism, where SOEs compete with private firms with similar strategies and objectives. This paper contributes to this debate through a novel perspective. We look at SOEs from the angle of the MCC and we analyze in detail the reported rationales of a sample of 355 M&A deals performed by SOEs as acquirers over the period 2002–2012; our aim, after having creating a taxonomy of deal rationales, is to empirically test two alternative hypotheses: Deviation versus Convergence of M&A deal rationales between public and private enterprises.
We find that more than 60% of the deals performed by SOEs as acquirers are driven by “shareholder-value maximization” motives, similarly to private enterprise acquirers. The other 40% of deals are almost equally spread among three rationales that specifically relate to the role of modern state capitalism in the economy: the development of innovative projects and competitive infrastructures (“innovation”), the strengthening of competitive positions to extract rents or accumulate resources (“rent-extraction”), and the bail-out of financially distressed firms (“financial distress”). The most important finding is that the last rationale, which is the only one clearly deviating from the objectives of profit maximization typical of private ownership, is by far less important than the others. Given that the recent wave of cross-border SOE M&As, especially from Chinese enterprises, has raised regulatory concerns in many countries (e.g. the institution of the US Foreign Investment and National Security for scrutiny of potential SOE foreign acquirers), our findings, in line with Karolyi and Liao (2017), suggest the majority of SOE deals are no differently motivated than those of private firms, and may not deserve a specific regulatory scrutiny.