Table 4: Difference-in-differences Regression
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CHAPTER 5: CONCLUSION AND RECOMMEDATION
This research aimed at unfolding the recent trends in domestic high-tech M&A marketin China where, starting from 2008, fiscal reforms have been directed to the promotionof advancements in technological innovation. M&A volume as dependent variable wasselected given the theoretical background outlining the strategic motives of mergers:fast growth, synergies, improvement in the firms’ management and tax benefits. M&Atax structuring is part of the evaluation process and income tax is found to be one ofthe main focus of the tax planners. The financial markets’ variables are also added toestimate their effect on M&A trends for the information technology industry. China’ssurge in capital and financing availability as well as appetite for global M&A tech dealshas given motive to further investigate the underlying factors of these trends, on anational level and for a selected type of industry.
The core hypothesis of this thesis is whether the high-tech M&A events dopositively react to preferential tax policy aimed at allowing firm to engage in moreresearch and development to foster innovation. A low CIT as fiscal incentive doesallow companies to hold larger shares of profits, giving the opportunity to companiesto reinvest such profits. In fact the common point in the academic literature is that taxrate is negatively correlated with M&A flow. Our difference-in-difference modelproved our first hypothesis that the 2008 tax reform result in a significant effect for ourtreatment group, adding up to the existing literature by providing a domestic andindustry-level study on M&A. The second hypothesis a country’s financial deepeningis reflected in M&A activity is represented by the estimation that a 1% increase in stockand debt market capitalization is associated with 0.822% and 0.433% surge in M&Aexpense value respectively. Moreover some authors affirm tax policy is the mostfrequently instrument used by government to encourage S&T innovation. However taxincentives do not captivate long-term investment as much as governmental long-termstrategies. China, already in 2006, had issued a “Outlined National Program forMedium- and Long-Term Development of Science and Technology (2006-2020)”which reports guiding principle for the country to pursue a strategic technologicaldevelopment in a spam of 15 years.
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