Introduction

Emerging economies refer to those countries that have low income level but rapid economic growth rate achieved by using economic liberalization as their primary engine of growth (Hoskisson et al., 2000; Xu and Meyer, 2013). In recent years, emerging economies make significant contributions to global GDP (Chen and Chen, 2016; Lebedev et al., 2015; Li, 2013, 2017; Padmanathan et al., 2018; Qiao and Yang, 2015; Sharma and Chanda, 2017; Wekerle et al., 2017). Emerging economies are able to boost their economic performance while many parts of the world economy, including developed economies, stagnated (Alves et al., 2016; Estorilio et al., 2017; Furtado et al., 2017; Nölke et al., 2015; Peng et al., 2016). According to World Economic Outlook Report (The International Monetary Fund, 2016), the growth rate in emerging economies in 2016 is 4.2%, whereas the growth rate in developed economies in 2016 is only 1.6%. This report predicts that emerging economies will make a larger contribution to the growth of world economy than developed economies. Firms based in emerging economies have been undertaking mergers and acquisitions both inside and outside of their domestic markets (Meyer and Thaijongrak, 2013). Mergers and acquisitions strongly depend on the quality of financial markets, which are shaped by the institutional environment (Lebedev et al., 2015). Find that institutional changes, particularly corporate governance reforms, affect firms’ decisions of mergers and acquisitions. In emerging economies, institutions and policies’ changes are frequent, and industry concentration is low (Xu and Meyer, 2013). On one hand, firms in emerging economies have to make expansion for surviving in an environment full of fierce competition. Furthermore, they tend to choose mergers and acquisitions for achieving legitimacy (Yang and Hu, 2016). On the other hand, the improved institutions condition in emerging economies drive firms to perform mergers and acquisitions for better development (Cui, 2012). Prior studies have explored how mergers and acquisitions impact acquirers’ performance with inconsistent findings. Both negative acquirer performance (Aybar and Ficici, 2009; Bertrand and Betschinger, 2012) and positive acquirer performance (Bhagat et al., 2011; Bhaumik and Selarka, 2012; Chi et al., 2011; Gubbi et al., 2010; Nicholson and Salaber, 2013) have been found. For target firms, consistent positive returns on acquisitions have been found (Chari et al., 2012; Goddard et al., 2012; Liao and Williams, 2008). The number of mergers and acquisitions performed by listed Chinese pharmaceutical firms are growing in recent years. Driven by new national policies, high investment return rate, and low industry concentration, listed Chinese pharmaceutical firms are looking for domestic small pharmaceutical firms, hospitals, chain pharmacies, foreign pharmaceutical firms, drug R&D institutions, and medical institutions as their targets of mergers and acquisitions. In addition, the new version of Good Manufacturing Practice (GMP), pharmaceutical circulation planning in China, the reform of drugs review and approval system, control of medical insurance, and the adjustments in medicine catalog are the factors that impact listed Chinese pharmaceutical firms’ decision of mergers and acquisitions. Given the institutional changes in China and the rising number of mergers and acquisitions performed by listed Chinese pharmaceutical firms, this paper develops a behavior-performance framework for exploring the relationship between firms’ strategies of mergers and acquisitions and their performance, specifically price-earnings ratio, by running a partial least squares regression with the data of listed Chinese pharmaceutical firms from 2008 to 2016.