The scale of cross-border mergers and acquisitions by Chinese firms has increased steadily in recent years. According to the United Nation Conference on Trade and Development, cross-border mergers and acquisitions by Chinese firms totaled US$ 8.139 billion in the period of 1988 to 2003, most of which occurred after 1997. While the average amount each year was only $ 216 million between 1988 and 2003, it reached the level of $ 1.647 billion in2003. There are a few well publicized cases: Shanghai Electric Group purchased a Japanese printing machine manufacturer in 2002, TCL acquired Schneider in Germany in 2003 and Lenovo purchased PC business of IBM in2004. All these cases show Chinese enterprises have entered an era of cross-border mergers and acquisitions.

The economic performance of acquiring firms differs as a result of such corporate action. Some of the differences may relate to the motives of the international expansion. For example, some companies do it because of competitive pressure at home market, while others seek resources such as raw materials and technologies, and probably a few are even encouraged by government policy measures. Despite the variety in their motives, many companies underestimate difficulties and integration risks in cross-border M&A and don’t have a clear idea about success factors that contribute to the difference in performance. Therefore it is imperative to have a good understanding of the relationship between performance of Chinese overseas mergers and acquisitions and determinant factors.

Although the issue is clearly important, many serious academic studies are hard to find. A systematic search through the website of the China National Knowledge Infrastructure that lists all academic journals published in China give us nearly one thousand articles on cross-boarder M&A. Most are merely reviews of existing theories, descriptions of current situations or simple case studies.

Our study attempts to analyze systematically economic performance and its determinants of cross border M&A made by Chinese companies in recent years. In addition to contribute to cross-border M&A literature, we also hope that the findings can provide useful guidance to outward foreign direct investment by Chinese enterprises in the future.

Cross-border M&A is not new. What this paper intends to contribute is to explain the firm level factors and performance of overseas M&A by Chinese enterprises. Because the M&A performance are influenced by multiple factors, we adopt a multiple theoretical perspectives, specifically, organization learning perspective and agency theory.

As we discussed early, we have not yet found a well developed database on the cross-border M&A, therefore we develop on our own a database covering 165 M&A cases by searching through various data sources including company websites, annual reports, newspapers, and the internet.

The paper is organized as follows. The features of cross-border M&A activities of Chinese firms are discussed inspection 2. After a short literature review, a number of hypotheses are developed based on a number of theoretical perspectives. Section 4 discusses the methodology and results are reported in section 5 before the concluding remarks.

2. Features of Cross-border M&A by Chinese Companies

Cross-border M&A by Chinese companies began in the 1980s, with most of the target companies located in the US, Canada and Hong Kong. The firms involved were basically large state-owned enterprises, such as CITIC, SINOCHEM, Capital Steel and China Resources. For example, Beijing Capital Steel Group purchased 70% shares of an American engineering company MASTA for US $3.4 millions in July 1988. In the 1990s, more and more Chinese companies start engaging acquisitions overseas. In addition to the state-owned enterprises, privately and collectively owned enterprises also joint the game. After entering into the 21 century, Chinese firms become more aggressive in cross-border mergers and acquisitions, several large cases occurred, such as the purchase of Korean company Sang Yong Motor Company by Shanghai Automotive Industry Corporation and the purchase of PC business of IBM by Lenovo.