This paper investigates how communications between regulators and firms through comment letters affect the outcomes of large mergers and acquisitions (M&As) in China. Unlike the U.S. Securities and Exchange Commission… Click to show full abstract
This paper investigates how communications between regulators and firms through comment letters affect the outcomes of large mergers and acquisitions (M&As) in China. Unlike the U.S. Securities and Exchange Commission (SEC), which uses comment letters to improve the accuracy of the measurement of deals, Chinese regulators worry about controlling shareholders' self-dealing and use real-time comment letters to expose suspicious deal specifics and to create pressure for controlling shareholders to back down. I find that the Chinese stock exchanges issue more severe comment letters on deal filings that indicate controlling shareholders’ expropriation of minority shareholders. More severe comment letters are associated with a lower market response to the receipt of letters, predict a higher probability of voluntary deal cancellation by management, and indirectly increase the probability of deal withdrawal and lengthen the processing time for equity-funded deals by affecting the approving body’s scrutiny level.
               
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