Author(s)

YueChun Xu^*, ChenXi Liu, YuYing Wei, Min Liu

Affiliation(s)

Guangdong University of Finance & Economics, Guangzhou 510320, Guangdong, China.

Corresponding Author

YueChun Xu

ABSTRACT

Cross-border mergers and acquisitions (M&A) are one of the most important ways for countries to participate in the global economy. China's bilateral diplomatic relations with other countries are flawed and the data are mainly from the Chinese media, which may lead to omissions in diplomatic events, lack of objectivity and insufficient information, which may lead to miscalculations. Therefore, it is necessary to select a measure that reflects the high level of recognition between the two countries in international affairs or bilateral affairs. Using unbalanced panel data (including cross-border M&A data and United Nations General Assembly (UNGA) voting data) for 181 countries (or regions) from 1992-2017, the paper empirically examines the impact of bilateral diplomatic relations on China's cross-border M&A completion rate and its mechanism of action, by building an estimation model, mediation effect models, and conducting a robustness test. The mediating effect in the mechanism test finds that bilateral diplomatic relations affect the completion rate of cross-border M&As between Chinese and foreign firms through both formal (i.e., the signing of BITs and the establishment of bilateral partnerships) and informal mechanisms (i.e., exchanges among senior bilateral leaders and the establishment of Confucius Institutes). For formal institutions, bilateral diplomatic relations can increase the completion rate of  cross-border M&As from and to China by facilitating the signing of BITs and the establishment of bilateral partnerships. For informal institutions, bilateral diplomatic relations increase the completion rate of cross-border M&As from and to China by facilitating exchanges between high-level leaders of the two countries and the establishment of Confucius Institutes. The results of the study show that bilateral diplomatic relations can help improve formal and informal systems to facilitate successful cross-border M&As, and the Chinese Government can draw on the successful experience of political diplomacy to create more opportunities for bilateral political, economic and cultural exchanges. In addition, both China and other countries can actively explore bilateral and multilateral cooperation mechanisms and promote the establishment or formulation of new cooperation rules and agreements.

KEYWORDS

China; Cross-border mergers and acquisitions; Bilateral diplomatic relations; Mediating effect

CITE THIS PAPER

YueChun Xu, ChenXi Liu, YuYing Wei, Min Liu. Bilateral diplomatic relations and cross-border M&As: evidence from China. World Journal of Economics and Business Research. 2025, 3(5): 26-37. DOI: https://doi.org/10.61784/wjebr3072.

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