Ganyue | Incomplete Contracts, Ownership Differences, and the Vertical Merger Mechanism of Domestic

Recently, the 2020 Academic Symposium on International Trade Disputes and Globalization Restructuring, jointly organized by the Center for International Finance and Economics Research (CIFER) of the National Institute of Financial Research at Tsinghua University and the Center for Cross-border Digital Capital Research (IDC) of the Institute of Fintech at Tsinghua University, was held.2020 International Conference on US-China Trade Disputes and Reforms in GlobalizationThe meeting was successfully held online.Currently pursuing an academic master's degree in World Economics at the School of International Economics and Trade, Jiangxi University of Finance and Economics.Sweet MoonAttended and shared his experiences with his collaborator, Associate Professor of the School of International Economics and Trade, Jiangxi University of Finance and Economics.Jiang Hanming's theme is《Incomplete contracts, ownership differences, and the vertical merger and acquisition mechanism of domestic manufacturing enterprises》The article.

Sweet Moon

Gan Yue is a postgraduate student majoring in World Economics at the School of International Economics and Trade, Jiangxi University of Finance and Economics. From 2013 to 2017, she studied at the School of Finance, Jiangxi University of Finance and Economics, receiving the title of "Excellent Student" for four consecutive years during her undergraduate studies. She entered the World Economics program at the School of International Economics and Trade, Jiangxi University of Finance and Economics in 2018 and received a second-class academic scholarship in the same year. Her master's supervisor is Associate Professor Jiang Hanming of the School of International Economics and Trade, Jiangxi University of Finance and Economics. Her main research area is global value chains. In 2020, she led a university-level research project at Jiangxi University of Finance and Economics entitled "A Study on the Influencing Factors of Offshore Outsourcing from the Perspective of Incomplete Contracts—Based on a Network Production Model."

Sweet MoonIn the presentation, it was mentioned that the paper, co-authored with Antras and Chor (2013), expanded upon the incomplete contract perspective to develop a multi-stage sequential production model reflecting the domestic vertical merger and acquisition (VMEI) behavior of Chinese manufacturing enterprises. Based on this, corresponding hypotheses were proposed and empirically tested using a combination of the BVD-Zephyr global M&A transaction analysis database and the CSMAR database from 2004 to 2019. The empirical results show that in substitutive industries, non-state-owned listed companies tend to integrate upstream production stages. In complementary industries, non-state-owned listed companies tend to integrate downstream production stages. Both effects are significantly amplified with increasing levels of industry contract incompleteness. Since these effects were not reflected in the sample of state-owned listed companies, the conclusions also indicate that ownership differences play a crucial role in explaining the mechanism of vertical MMEI in domestic manufacturing. The main contributions of this paper are: First, while existing literature has begun to use the AC model to explain corporate vertical MME behavior, it has not yet been used to explain domestic vertical MME behavior in transitional economies. Based on this, this paper expands the application of the AC model, using it for the first time to analyze the impact mechanism of domestic vertical mergers and acquisitions (VMIs) in transition economies, focusing on the specificities of applying the AC model to transition economies. Secondly, by distinguishing between state-owned and non-state-owned enterprises, this paper expands existing literature's understanding of the relationship between ownership differences and domestic VMIs, contributing to a deeper understanding of the differences in domestic VMIs among enterprises with different ownership structures, and providing a reference for governments in formulating relevant policies.

Chen Xiao

Chen Xiao, a researcher at the Center for International Finance and Economics Research (CIFER) at Tsinghua University, commented on Gan Yue's article. Professor Chen found it very interesting, noting that the article attempts to discuss the relationship between industry contract intensity and corporate M&A behavior within a value chain context, and empirically finds significant differences in the behavior of Chinese state-owned enterprises (SOEs) and non-SOEs, demonstrating its innovativeness. Professor Chen also offered some suggestions: First, he suggested further refining the proposition. Contractual intermediate goods are intermediate inputs that final product manufacturers can fully control and should be endogenously determined by final product manufacturers, but here they are exogenous. Second, the expression for final firm profits is debatable; the solution for the optimal "vertical integration tendency" seems problematic and should be further explored. Third, he suggested using upstream degree in a fixed year to remove endogeneity in the empirical section, which would provide better results. Fourth, he suggested using scale as the explained variable; the article uses Poisson panel estimation for the explained variable, but using scale as the explained variable seems more reasonable. Further verification of the mechanism by which the behavior of Chinese SOEs deviates from theoretical predictions would be even more interesting.

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