Abstract: M&A and reorganization serve as catalysts for corporate development and the adjustment of the national economic structure. Against the backdrop of rising global inflation, the impact of inflation on the mergers and acquisitions of Chinese companies is worth paying attention to. Based on the anticipated shifts in inflation from 2007 to 2021 and the M&A behaviors of non-financial companies listed on the A-share market in China, this paper conducts an empirical study. The findings reveal the following: firstly, when the inflation expectations increase, corporate equity will be undervalued due to the impact of inflation illusion on the investors, prompting firms to initiate M&A transactions to restore valuation; secondly, at times when inflation expectations are heightened, enterprises predominantly engage in non-industrial rather than industrial M&As. Although the frequency of initiated M&A deals escalates, the probability of their achievements decreases. After the M&A deals, the market performance somewhat shows improvements, whereas the operational performance experiences a decline. There is an increased likelihood of goodwill impairment charges within three years, suggesting that enterprises are primarily driven by market value management motives instead of the pursuit of synergistic effects when undertaking M&As; thirdly, for companies involved in the Shanghai-Hong Kong Stock Connect and those with higher margin debt balances, the managerial opportunism is mitigated, the inflation illusion of investors is ameliorated, and the propensity to commence M&A transactions based on market value management incentives is reduced. Therefore, to propel high-quality development through corporate M&A activities, it is imperative to optimize expectation management, minimize informational asymmetries, advance the orderly opening of capital markets, refine short-selling mechanisms, and steer M&A activities towards the direction of industrial upgrading through regulatory guidance.

Key words: inflation expectations, M&A and reorganization, inflation illusion, market value management