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August 16, 2026Economics and PoliticsOpen Access

Leverage Adjustments, Executive Incentives, and the Market Valuation of Acquisitions Under State Capitalism: Evidence From China

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Authors

CLChun I. LinJSJoseph C. P. ShiehHFHao Fang

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Overview

Empirical study reveals market penalties for acquisition leverage increases in state-owned firms with high CEO cash pay, highlighting valuation discounting under soft budget constraints.

Key Points

  • Investigate how state ownership and CEO financial incentives jointly determine the market valuation of acquisition-related debt adjustments.
  • Analyzed 2,251 completed M&A transactions by Chinese A-share listed acquirers between 2013 and 2023.
  • Examined announcement returns relative to leverage changes, executive cash compensation, state ownership, and the 2015 SOE pay-cap reform.
  • Acquirers utilized spare debt capacity during deal completion, with underleveraged firms exhibiting greater leverage increases, though leverage changes showed no systematic link to announcement returns in the pooled sample.
  • Within state-owned enterprises, leverage increases were associated with significantly more negative announcement returns when CEO financial incentives—primarily cash compensation—were high, especially around the 2015 pay-cap reform.

Cite This Study

Lin et al. (2026) studied this question.

synapsesocial.com/papers/6a8179dcf2fb91fc834ad4b5https://doi.org/10.1111/ecpo.70066
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