The impact of innovation on companies’ cross-border mergers and acquisitions: evidence from China

This paper contributes to the literature on the effects of companies’ current innovation capability on cross-border M&A initiation decisions by providing empirical evidence from China. Based on M&A motivation theories, we construct a uniquely combined dataset of 186 Chinese manufacturing companies that initiated cross-border M&As from 2012 to 2017, of which 158 and 43 companies initiated M&As in developed and “Belt and Road” countries, respectively. The research conclusions suggest a positive correlation between acquiring companies’ current innovation capability and cross-border M&A initiation decisions. More concretely, current innovation capability significantly and positively affects companies’ M&A initiation decisions in developed countries; however, there is a negative or insignificant relationship between current innovation capability and companies’ M&A initiation decisions in “Belt and Road” countries. Moreover, Chinese companies’ M&A initiation decisions in developed countries follow the business cycle, while in countries along the “Belt and Road”, this is not the case. This study also verifies that the research on innovation performance brought about by M&As is not spurious.