Abstract: As an important means of resource reallocation, mergers and acquisitions (M&As) play a vital role in value creation and transformation and upgrading for real estate firms. Unlike previous literature that focuses on acquiring firms, this paper takes M&A events of Chinese A-share listed real estate firms in Shanghai and Shenzhen stock markets from 2010 to 2022 as samples, and employs the multi-period difference-in-differences (DID) model to investigate M&As’ effect on the value of target real estate firms as well as the underlying mechanism. The empirical results show that M&As temporarily reduce the short-term value of target real estate firms, but significantly increase their long-term value. These conclusions remain robust after a series of endogeneity and robustness checks. Mechanism tests indicate that M&As enhance the long-term value of target real estate firms by alleviating their financing constraints. Heterogeneity tests based on M&A transaction characteristics show that vertical M&As and local M&As have a more significant positive effect on the long-term value of target real estate firms. Heterogeneity tests based on the external environment show that the positive impact of M&As on the long-term value of target real estate firms is more pronounced when monetary policy is accommodative and regional digital financial inclusion is higher. Heterogeneity tests based on internal firm characteristics show that M&As exert a stronger positive effect on the long-term value of small, high-growth, under-invested and risk-seeking target real estate firms. The conclusions of this paper provide useful implications for motivating real estate firms to seek being acquired, for the government to formulate and implement policies promoting M&As and restructuring of real estate firms, and for the practice of M&As among real estate firms.

Key words: M&As, financing constraints, target real estate firms, multi-period difference-in-differences, firm value