Do managers' professional connections benefit their firms in mergers and acquisitions: Chinese evidence

We examine whether top managers' professional connections, specifically in roles as executive officers of industry associations facilitate mergers and acquisitions (MA) for their firms and reduce deal premiums as acquirers. Leadership roles in industry associations could benefit the managers' firms in reducing information asymmetry in MA bidding, fostering trust between negotiation parties, and reducing overall deal costs. Consistent with our predictions, we find that firms with professional connections are more likely to successfully complete MA deals and pay smaller acquisition premiums. In additional analyses, we find results indicating that professional connections moderate conditions in the market that are often adversarial to business dealings. Specifically, we find that the beneficial effect of professional connections on MA deals is more pronounced for firms operating in environments where social trust is lower, for firms facing higher level of government intervention, and for non-state-owned firms as compared to state-owned enterprises.