Government Intervention and Corporate Investment Efficiency: Evidence from China

Abstract

Recent research has shown evidence that larger firms are more likely to destroy shareholder wealth through acquisitions. Those findings suggest that managers of larger firms are less likely to be disciplined by the market for corporate control than managers of smaller firms. With a sample of nearly 8000 acquisitions over the period from 1980–1999, this paper offers evidence to the contrary. The results suggest that larger firms are more likely to be the target of a disciplinary takeover than smaller firms. Further tests indicate that CEOs of larger firms are significantly more likely to be replaced following a series of poor acquisitions than CEOs of smaller firms. In total, managers of the largest firms continue to make the worst acquisitions despite the evidence that they are more likely to be punished for doing so.