In todays globalized environment, amalgamation and acquisition is a powerful tool for external enlargement in the capital market, which has important impact on company development. Merger and acquisition activities offer companies the chance to accomplish growing, derive entree to strategic intangible assets and quickly better their sustainable competitory advantage. Since the 1990s the M & A ; A market has experienced four amalgamation moving ridges, while a 5th M & A ; A moving ridge is underway, with amalgamations characterized by larger size and a more planetary inclination. In peculiar, cross-border M & A ; A minutess play a more of import function in the 5th M & A ; A moving ridge. Based on planetary M & A ; A statistics, the value of cross-border acquisitions maintained an increasing tendency, from $ 745 million in 1987 to $ 48000 million in 2007.[ 1 ]Therefore, in the instance of recent M & A ; A, bookmans have focused peculiarly on measuring motive and value consequence.
M & A ; A activities in China
In the context of the rapid economic development and competition force per unit area in China, many companies desire to utilize M & A ; A to accomplish the expected synergism consequence and market power, to cut down costs and to heighten their sustainable competitory advantage. The first M & A ; A trade among Chinese companies took topographic point in 1993. In 2004, China attracted global attending when Lenovo engaged in the acquisition of IBM ‘s Personal computer division for $ 1.25 billion. This demonstrated that China has aspirations to get Western houses ( Chen and Young, 2010 ) . In the old ages since so, in an attempt to interrupt out of the growing constriction and enhance market power, several Chinese companies have engaged in a series of M & A ; A minutess, particularly cross-border minutess. For Chinese houses, the 2008 planetary fiscal crisis provided an chance for rapid enlargement by geting foreign companies ( Chen and Yong, 2010 ) .[ 2 ]The information from Figure 1 and Figure 2 reveal that in 2009, the Chinese M & A ; A market completed 294 amalgamations with 38 cross-border acquisitions, while one-year growing was 61.2 % . In that twelvemonth, Geely acquired Volvo for $ 1.8 billion.[ 3 ]In 2010, the figure of amalgamation trades increased to 626. Overall, the informations show that Chinese M & A ; A trades are typically larger in value and size, and be given to be cross-border.
Beginning: Pedaily and ZeroIPO ( 2012 )
Not surprisingly hence, the impact and public presentation of Chinese M & A ; A trades have attracted concern and academic attending. The bulk of empirical surveies have focused on the issue of value creative activity as the measurement standard of success. Other of import factors in M & A ; A value creative activity include the acquirer features, payment method, and type of amalgamation. Uddin and Boateng ( 2009 ) indicate that big M & A ; A minutess generate a figure of issues, related to payment method, bureau job, amalgamation type and synergy consequence, which impact on acquirers ‘ value creative activity. Consequently, during the amalgamation procedure, Chinese acquirers should see how to accomplish better public presentation and which factors determine the stockholders ‘ value creative activity.
Motivated by Wansley et Al. ( 1983 ) , Goergen and Renneboog ( 2004 ) and Uddin and Boateng ( 2009 ) , this survey seeks to find the short-run value influence of M & A ; A harmonizing to different factors.
Most of the Chinese surveies in this country focal point on the impact of M & A ; A on long-run fiscal public presentation. There are far fewer short-run event surveies for China than for Western contexts. Therefore, this paper seeks to measure the short-run unnatural return of 187 Chinese acquirers listed in the Shanghai and Shenzhen stock exchanges over 2002-2012, and to look into the stockholders ‘ value consequence of M & A ; A based on assorted acquisition factors. Finally, through analysing the motive and comparing the value effects across M & A ; A factors, this paper will supply some recommendations for future M & A ; A minutess.
Structure of the thesis
This thesis is organized as follows: Chapter two reappraisals anterior literatures on the impact of M & A ; A motive on value, and the value consequence of M & A ; A activities based on assorted factors. Chapter three presents the sample aggregation and methodological analysis. Chapter four analyzes empirical grounds on whether the recent Chinese M & A ; As create unnatural returns for acquirers ‘ stockholders, and the impact of each factor on the short-term return. Chapter five summarizes the analysis consequences and provides comprehensive recommendations for rating by look intoing those factors.
Chapter 2: Literature Reappraisal
Amalgamation and Acquisition definition
A amalgamation is a dealing in which acquirers assume assets and liabilities of the mark. In a amalgamation dealing, two or more companies combine to organize one new company in which one corporation will be larger and more powerful ( Gaughan, 2007 ) .
Harmonizing to Sudarsanam ( 1995 ) , an acquisition is a dealing in which “ assets or portions for one inefficient company are absorbed by another company, and the mark stockholders cease to being as proprietors of that house ” . The geting company desires to get the bulk of portions or assets from the mark house, so that the mark becomes a subordinate within its group and the acquirer additions commanding rights in the acquired house ‘s ownership construction ( Hill and Jones, 1998 ; Hitt et al. , 2009 ) .
Underliing motive theories of M & A ; A
In order to measure the impact of M & A ; A on stockholders ‘ value, it is necessary to look into the drivers of M & A ; A. Generally, motives encompass the operating efficiency additions and fiscal benefits brought approximately by synergy effects, the increased market power and greater market size through the monopoly consequence, and hazard decrease and entree to new markets through the variegation consequence. Harmonizing to Trautwein ( 1990 ) , assorted motive theories, including efficiency theory and monopoly theory, explicate why companies prefer to take advantage of M & A ; A to derive growing. Different theories will each concentrate on a different histrion ‘s involvement. Following Wubben ( 2007 ) , motives of M & A ; A can be categorized into two chief types: stockholder related, and direction related. This subdivision will look into these two facets to reexamine how the motive impacts on the value creative activity of geting houses.
Shareholder related motive
Here, we review three theories of motive driven by value creative activity for stockholders.
Seth et Al. ( 2000 ) propose that synergy consequence is related to efficiency theory, which states that the combination of two houses is associated with more value compared to that of the independent houses. Hence:
“ Value ( A+B ) & gt ; Value ( A ) +Value ( B ) ”
Andrade et Al. ( 2001 ) province that synergism benefits are caused by cost economy, greater scale economic systems, heightening direction efficiency by uniting direction accomplishments and increasing production efficiency by fiting complementary resources. Some research workers believe that the synergy consequence is the beginning of value creative activity ( Seth et al. , 2002 ; Dennis and Mcconnel, 1986 ) . Therefore, efficiency addition through synergy consequence is one of the most of import motives for M & A ; A activities.
Harmonizing to Trautwein ( 1990 ) , synergy benefits are of three types:
Trautwein ( 1990 ) points out that the operating synergism enables companies to recognize long-run value-enhancing and cost decrease of the concern unit and R & A ; D by accomplishing economic systems of range or graduated table. Furthermore, M & A ; A activities lead to enhanced usage of underutilized assets ( Robert, 2002 ) . Consequently, economic systems of range or graduated table and operational cognition transportations are major beginnings of operational synergism ( Porter, 1985 ) .
Financial synergism represents the betterment of fiscal capacity and decrease of cost of capital by pooling fiscal resources and external hard currency influx. Harmonizing to Trautwein ( 1990 ) , the systematic fiscal hazard of the house ‘s investing portfolio and dealing cost can be reduced by prosecuting in M & A ; A in unrelated concern Fieldss. In the visible radiation of Lewellen ‘s ( 1971 ) “ Co-insurance ” theory, because of the greater debt capacity after amalgamation, fiscal hazard and cost of capital can be significantly reduced, while value is created for the acquirer from possible revenue enhancement nest eggs. Furthermore, if bidders have sufficient capital and low degrees of debt, both mark and bidder may obtain the fiscal benefit from the debt co-insurance consequence.
Most companies engage in M & A ; A to better managerial efficiency through reassigning unequal managerial capablenesss across two houses. In add-on, harmonizing to Chatterjee ( 1986 ) , the geting house may heighten monitoring and planning abilities through pooling of the direction resource. Consequently, through M & A ; A, directors ‘ abilities may be enhanced, so increasing operational efficiency and making more value.
Harmonizing to Seth ( 1990 ) , the market power consequence is related to monopoly theory, whereby the larger the market portion owned by a company, the more capableness it has for commanding the market, forestalling entree to rivals and act uponing the market monetary value. Hence, market power consequence is a chief M & A ; A motive, because the acquirer may accomplish an enlargement of market graduated table and increased market power, so gaining stronger competitory ability and greater net income ( Ghosh, 2004 ) . The market power consequence comes from horizontal M & A ; A, because it can better the grade of industry concentration and profitableness degree, every bit good as stockholders ‘ value ( Trautwein, 1990 ) .
Diversification is another indispensable M & A ; A motive, since it helps the acquirer company to spread out in a much broader field and enter new capital markets through prosecuting in pudding stone M & A ; A and cross-border acquisitions ( Berger and Ofeck, 1995 ) . Furthermore, many companies desire to cut down systematic hazard and better investors ‘ return by portfolio and geographic market variegation ( Wang et al. , 2007 ) . Mandelker ( 1974 ) proposes that variegation has a positive impact on the stockholder value. However, Graham et Al. ( 2002 ) argue that beginnings of houses ‘ wealth devastation, such as those associated with overinvestment and misallocation of resources, are besides elements of the variegation consequence, and weigh against its benefits. Therefore, variegation has no clear impact on the stockholders ‘ value.
There are two chief theories of managerial motive, both of which involve stockholders ‘ value devastation.
Harmonizing to the hubris hypothesis ( Roll, 1986 ) bidders may pay a premium monetary value to the mark because many directors unwittingly overestimate the future possible synergism consequence and value of the mark. Based on the hubris hypothesis, Seth et Al. ( 2000 ) suggest that directors engage in M & A ; A for their ain personal benefits instead than for pure economic additions. Furthermore, directors ‘ hubris can explicate their irrational behavior that leads to overpayment. As a consequence, if managerial factors drive the M & A ; A dealing, the motive of maximising stockholders ‘ value will be lost.
Agency theory is besides related to the managerial motive. Separation of ownership and control causes the bureau job whereby the directors ‘ involvement struggles with stockholders ‘ best involvements ( Jensen and Meckling, 1976 ) . In general, directors act as the agents of stockholders, but focus on prosecuting their ain benefits and power instead than stockholders ‘ involvement. Kroll et Al. ( 1986 ) and Morck ( 1990 ) study that directors seek to spread out houses ‘ size by M & A ; A because their compensations are associated with company size. Therefore, M & A ; A is motivated by imperium edifice that maximizes directors ‘ involvement instead than stockholders ‘ value ( Shleifer and Vishney, 1989 ) .
In drumhead, there is a consensus that the chief factors of stockholders ‘ value loss in the context of M & A ; A are related to managerial hubris and chase of managerial benefits, while several beginnings of synergism benefits, market power and variegation will assist the company to make value and accomplish growing ( Berkovitch and Narayanan, 1993 ; Weston and Weaver, 19 ) .
Empirical grounds on value effects of M & A ; A
Empirical grounds from Western event surveies
In the Western market, the bulk of surveies agree that mark houses earn overpoweringly positive unnatural returns, while others propose that most acquirers experience important value devastation in the event window. Firth ( 1980 ) concentrates on 642 successful acquisitions in the UK from 1969 to 1975, and finds that the unnatural return of the geting houses was significantly reduced by -4.5 % on proclamation twenty-four hours, while there is no grounds of value creative activity consequence for the geting house. These findings are consistent with Smith and Kim ‘s research ( 1994 ) , since their empirical grounds from 177 samples selected from 1980 to 1986 in the US market indicates important unnatural returns of -0.23 % with event Windowss ( -1, 0 ) on the bidder side, lifting steadily to -1.26 % . Mitchell and Lehn ( 1990 ) focal point on 232 bidders from 1980 and 1988. They find that M & A ; As generate significantly negative impact on acquirers ‘ stockholder value, with unnatural returns of -1.66 % over ( -1, +1 ) , compared to returns of 0.70 % for geting houses that do non prosecute in M & A ; A. This phenomenon is confirmed by Sundarsansam and Mahate ( 2003 ) , whose survey of 519 samples listed in the UK from 1983 to 1985 shows that acquirers experienced significantly unnatural returns of between -1.39 % and -1.47 % across ( -1, +1 ) . A more comprehensive research by Lang et Al. ( 1991 ) looks at 87 marks and bidders from successful stamp offers in the US, and finds important negative returns runing from -6 % to -7 % with ( -5, +5 ) . Meanwhile, Gregory ( 1997 ) examines the long-run value creative activity of 420 UK houses, and studies that acquirers failed to accomplish the expected rating and possible benefit after 24 months of amalgamation. This determination is loosely similar with that of Limmack ( 1991 ) for the same probe period. Furthermore, Agrawal et Al. ( 1992 ) find negative public presentation of 937 acquirers in the US after 5 old ages, and cite failure to incorporate companies ‘ resources as the chief ground.
However, other surveies find that acquirers ‘ stockholders can derive significantly positive extra returns. For illustration, Franks and Harris ( 1989 ) measure a sample of 1058 bidders and 1898 marks listed in the UK from 1955 to 1985, and happen that acquirers achieved between 2.4 % and 7.9 % over the period -4 to +1 month, while gaining about 1 % mean unnatural returns at proclamation month. In add-on, in their research of 138 Canadian bidders across ( -1, +1 ) yearss, Ben-Amar and Andre ( 2006 ) argue that M & A ; A has a significantly positive impact on acquirer value. Similar findings are confirmed by Franks et Al. ( 1991 ) and Song & A ; Walking ( 2004 ) .
Empirical grounds from Chinese event surveies
In the Chinese market, Chen and Zhang ( 1999 ) analyze short-run stock return of houses listed in the Shanghai stock exchange across ( -10, +20 ) yearss. Their survey studies that both bidder and mark have undistinguished positive tendency for return, and the stock market reaction to M & A ; A shows no singular fluctuation. The same phenomenon is found by Liang ( 2002 ) . Li and Zhu ( 2005 ) survey 1672 houses from 1998 to 2003, and happen that geting houses have negative public presentation after 2-3 old ages but earn positive returns in the short-run. Conversely, Zhang ( 2003 ) uses 1216 amalgamation samples from 1993 to 2002 in the A-share market to analyze the effects of M & A ; A on unnatural returns, and confirms that acquirers can recognize 4.5 % expected benefits. Similarly, in their survey of 349 samples from 1999 to 2000, Li and Chen ( 2002 ) find that M & A ; A enables acquirers to accomplish statistically positive value. The determination on acquirer value creative activity in the short tally is confirmed by Lei and Zhang ( 2002 ) and Bi ( 2011 ) .
In drumhead, there are inconsistent consequences on the short-run stockholder value. Consequently, this paper generates the first hypothesis as follows:
Hypothesis 1: In the Chinese M & A ; A minutess, the acquirers ‘ stockholders will obtain negative unnatural returns in the short term.
The value consequence of M & A ; A factors
This subdivision will reexamine cardinal surveies on the value consequence of assorted factors in M & A ; A, including method of payment, industrial relatedness, and geographic variegation.
Method of payment consequence
The methods of payment can be categorized into three types: hard currency merely, stock merely and a combination of the two. Many old surveies debate whether payment method has important impact on value maximization.
In the context of the information dissymmetry, the bidders choose the payment method based on the expected public presentation. Furthermore, the method of payment serves as a signal to the market, go throughing on information about the acquirer ‘s extroverted public presentation to investors. Based on information and signal theory, hard currency payment implies that the acquirer expects to hold improved hard currency flow, increased value and better funding capacity in the hereafter, and reflects that the acquirer ‘s stock monetary value is undervalued ( Myers and Maijluf, 1984 ) . In contrast, payment by stock Acts of the Apostless as a signal to the market that the bidder ‘s portion monetary value is overvalued. Furthermore, acquisition financed by stock will ensue in the dilution of stockholders ‘ equity post-acquisition, because of an addition in the figure of outstanding portions and the alteration in the bidder ‘s equity construction, while the original stockholders ‘ value will stay unchanged before accomplishing the expected synergism benefits ( Mitchell et al. , 2004 ) . Consequently, based on the information and signalling effects, legion bookmans argue that hard currency minutess tend to make more value than acquisitions financed by equity ( e.g. Dong et Al. 2005 ; Travlos 1987 ) . Table 1 shows these research workers ‘ findings in more item.
Table 1: superior public presentation for hard currency payment
M & A ; A dealing
Tralvos ( 1987 )
167 US M & A ; A minutess
A important -2.09 % extra return in stock denominated minutess and undistinguished returns of 0.37 % with hard currency trades across ( -1, +1 ) yearss.
Dong et Al. ( 2005 )
2922 successful US M & A ; As 1978-2000
Minutess with hard currency payment can surpass acquisitions with stock payment.
Stock payment has a negative impact and hard currency payment a positive impact.
Linn and Switzer ( 2001 )
413 bidders in US 1967-1987
Significantly increased unnatural returns of 3.14 % in hard currency acquisitions across ( -5, +5 ) yearss.
Walker ( 2000 )
508 M & A ; As in US 1980-1996
Acquisitions paid by hard currency show significantly positive returns of +2.38 % , but payment by equity earns undistinguished unnatural returns.
Moeller et Al. ( 2004 )
9712 M & A ; As in US 1980-2001
Bidders with hard currency addition important 0.693 % returns while bidders with equity tend to lose return by -0.96 % over ( -1, +1 ) in geting both public and private houses.
Cash acquisition is significantly associated with superior public presentation compared to stock command.
Antoniou and Zhao ( 2004 )
179 successful UK acquirers 1991-1998
Bidders that are paid by equity tend to significantly underachieve in the twelvemonth of the command.
Boateng and Bi ( 2010 )
1267 M & A ; As in China 1998-2008
Acquisitions by hard currency are positively associated with superior public presentation compared to M & A ; As financed by equity in the pre-event period.
Cash acquisitions underperform in the long tally 12 months after commands compared to the short tally.
However, there are besides conflicting positions. Jensen ( 1986 ) points out that, harmonizing to the free hard currency flow hypothesis, stock denominated amalgamations are associated with higher return compared to hard currency payment, since some bidders ‘ hazards can be shared by reassigning them to the mark. This determination is consistent with Chatterjee and Kuenzi ( 2001 ) and Fuller et Al. ( 2002 ) . The revenue enhancement consequence hypothesis serves as another account of value creative activity in stock acquisition. First, the capital additions revenue enhancement in the hard currency acquisition must be paid in the current twelvemonth, whereas with stock acquisition capital additions may be deferred until the sale of new securities ( Wansley et al. , 1983 ) . Second, the revenue enhancement consequence premium in hard currency acquisition is higher compared to stock payment. Hence, these two hypotheses support the thought that stock payment is associated with better public presentation compared to hard currency acquisition.
Although method of payment does hold value consequence, Martin ( 1996 ) proposes that the chief factors in M & A ; A return are related to managerial determination and integrating direction degree. Hence, there is no important grounds on the relationship between the method of payment and stockholders ‘ value.
There are comparatively few Chinese surveies in this field. Based on the contradictory findings outlined above, the inquiry of differential value consequence between hard currency payment and stock payment remains unsolved. However, harmonizing to signalling theory, the balance of sentiment and grounds is in favor of better public presentation for hard currency payment. Consequently the 2nd hypothesis is formed as follows:
Hypothesis 2: The Chinese acquisitions paid by hard currency will make superior value compared to acquisitions financed by stock.
Type of amalgamation consequence
Amalgamations can be loosely classified into two types: related amalgamation[ 4 ]and unrelated diversify amalgamation,[ 5 ]depending on the grade of relatedness between mark and acquirer and the extent of activity.
The synergy consequence is an of import motive of M & A ; A, since it is expected to ensue in efficiency additions which will bring forth value creative activity for stockholders ( Tuch and O’Sullivan, 2007 ) . The benefits of synergism effects are more widespread in related acquisitions, where bidders may accomplish larger economic systems of graduated table and range ( Singh and Montgomery, 1987 ) . Another chief beginning of value creative activity from related acquisitions is stronger market power, which helps acquirers to increase steadfast size, achieve more market portion, and enhance competition power ( Seth, 1990 ) . In unrelated acquisitions, beginnings of value creative activity may originate from the variegation consequence that enables the bidder to cut down hazard, better debt capacity and make an internal capital market ( Uddin and Boateng, 2009 ) . However, unrelated diversifying acquisitions may function direction involvements instead than stockholders, by bettering directors ‘ compensation owing to the growing in house size, and by diminishing hazards to managerial employment ( Kroll et al. , 1990 ; Amihud and Lev, 1981 ) . Furthermore, chase of enlargement through unrelated diversifying acquisition will ensue in overinvestment costs and increased entire stock hazard that may bring forth a damaging influence on the acquirer ‘s wealth ( Uddin and Boateng, 2009 ) . It is besides argued that unrelated M & A ; As require bidders to pass more in pull offing the post-merger integrating of two different concerns ( Malmendier and Tate, 2004 ) . Hence, there exist legion factors of value loss in unrelated M & A ; A minutess compared to related M & A ; A minutess. Not surprisingly, some research workers have been attracted to look into the value consequence of industry relatedness between acquirer and mark in M & A ; As. However, findings remain inconclusive. For case, Sudarasnam et Al. ( 1996 ) examine 424 UK acquisitions from 1980 to 1990 and conclude that related acquisitions may give important positive unnatural returns of 4 % across ( -20, +40 ) yearss. In contrast, utilizing 326 US dealing from 1975 to 1987, Morck et Al. ( 1990 ) find that difference between related and unrelated acquisitions tend to execute important negative return of 6.97 % across ( -1, +1 ) yearss. Meanwhile, Datta and Puia ( 1995 ) propose that there is ill-defined grounds for the influence of relatedness on the unnatural return of bidders in cross-border minutess. The assorted findings are summarized in Table 2 and Table 3 below.
Table 2: better public presentation for related acquisition
M & A ; A minutess
Walker ( 2000 )
278 US acquisitions 1980-to 1996
Acquirers are likely to derive positive extra return of 1.59 % in related commands and important losingss of -1.6 % from unrelated acquisitions with ( -2, +2 ) yearss.
Unrelated amalgamations have damaging consequence on acquirers ‘ value.
Maquieira et Al. ( 1998 )
135 unrelated and 125 related trades in US 1963-1996
Unrelated acquisitions exhibit significantly extra returns of -4.79 % while related acquisitions show significantly positive unnatural returns of 6.14 % across -2 to +2 months.
Healy et Al. ( 1992 )
50 US acquisitions 1979-1984
Median one-year cash-flow improves by 5.1 % in acquisitions with high industry relatedness across 5 old ages pre- and post- M & A ; A.
Pan and Chen ( 2004 & A ; 2005 )
153 Chinese acquirers in twelvemonth 2000
All Chinese acquisitions 1999-2002
Related acquisitions have superior public presentation compared to unrelated acquisitions in Chinese M & A ; A minutess.
Table 3: better public presentation for unrelated acquisition
M & A ; A minutess
Matsusaka ( 1993 )
All US M & A ; A in 1980 and 1987
Acquirers in diversifying M & A ; As can derive important CAR of 1.2 % around proclamation periods.
Lei and Zhang ( 2002 )
47 Chinese acquirers listed in Shanghai in 2000
Related acquisitions exhibit undistinguished impact on acquirers ‘ value. Unrelated acquisitions earn unnatural returns of 0.946 % in the proclamation yearss and CAR of 3.758 % across ( -40, +40 ) yearss.
Cheng and Wu
( 2007 )
37 related acquisitions 1998-2005
Using factor analysis, they find that returns from related acquisition do non better fiscal public presentation in the short-run.
Based on the above treatments, the bulk of Western surveies report that stockholders of related acquisitions tend to gain more return because of the benefit of synergism additions. Therefore, this survey hypothesizes that:
Hypothesis 3: Chinese related acquisitions tend to hold a greater return compared to unrelated diversifying acquisitions in the short tally.
Geographic M & A ; A consequence
M & A ; As can be categorized geographically into two types: cross-border and domestic. In the context of the 5th M & A ; A moving ridge, cross-border minutess are more common, as a agency of strategic enlargement in the globalized environment. Harmonizing to FDI theories,[ 6 ]the chief stockholders ‘ benefits in international M & A ; A arise from geographic variegation, which gives rapid entree to innovative engineerings and valuable intangible assets, the sweetening of competitory place in the planetary market, and the enlargement of market power in the foreign market ( Kiymaz and Mukherjee, 2000 ) . However, harmonizing to internationalisation theory, factors such as revenue enhancement ordinance, imperfect capital information, authorities intercession and ordinance, and integrating degree will impact on the benefits gained from cross-border M & A ; A ( Conn et al. , 2003 ) . As a consequence, the pick of mark house ‘s state may be an of import finding factor of M & A ; A. Not surprisingly, in the 5th M & A ; A moving ridge, the difference in value consequence between domestic and cross-border acquisitions has attracted academic attending. However, the consequences are inconsistent. Some empirical surveies find that domestic acquisitions tend to make more short-run value for the geting house than cross-border acquisitions ( Moeller et al. , 2003 ; Conn et al. , 2003 ; Campa and Hernando, 2004 ) . This might be because in domestic acquisitions it is much easier to accomplish integrating to derive better public presentation and the expected synergism, but cross-border acquisitions will confront issues due to different civilization and fiscal construction ( Wang and Boateng, 2007 ) . Other surveies find that cross-border acquisition is overpoweringly significantly associated with superior public presentation compared to domestic acquisition ( Lowinski et al. , 2004 ; Georgen and Renneboog, 2003 ) , while a 3rd group of research workers point out that there is no important grounds for different value effects between cross-border and domestic acquisitions ( Fatemi and Furtado, 1988 ; Yook and McCabe, 1996 ) . These findings are summarized in Table 4 and Table 5.
Hence, the consequences for geographic M & A ; A consequence are inconsistent. Based on the FDI theories, it is expected that benefits from foreign capital markets are more likely to assist bidders to bring forth more additions ( Kiymaz and Mukherjee, 2000 ) . Therefore, the undermentioned hypothesis can be generated:
Hypothesis 4: The Chinese bidders engaged in cross-border commands are associated with superior public presentation compared to domestic acquisitions.
Table 4: superior public presentation for domestic acquisition
M & A ; A dealing
Moeller et Al. ( 2003 )
12,023 US acquisitions 1980-2001
There is a significantly positive return of 1.1 % for domestic acquisition with ( -1, +1 ) yearss.
Campa and Hernando ( 2004 )
262 EU coup d’etats 1998-2000
Domestic acquisitions earn 0.61 % short-run return while cross-border acquisitions addition merely 0.05 % unnatural return with ( -1, +1 ) yearss. ( both important ) .
Tax returns for cross-border M & A ; A are significantly lower compared to domestic M & A ; A in the short term.
Conn et Al.
( 2003 )
4344 UK commands
Significantly positive 0.68 % return in domestic acquisitions is somewhat higher than return of 0.33 % for cross-border commands around proclamation yearss.
Table 5: superior public presentation for cross-border acquisition
M & A ; A dealing
Lowinski et Al. ( 2004 )
114 European acquisitions 1990-2001
Acquirers in cross-border minutess are significantly associated with positive return of 1.26 % while domestic acquisitions earn significantly positive return of merely 0.32 % in the short-run.
Tax returns in cross-border acquisitions are significantly higher compared to domestic M & A ; A at 1 % degree.
Georgen and Renneboog ( 2003 )
228 EU M & A ; A minutess
Empirical grounds indicates important return of -0.1 % for bidders in domestic coup d’etats. Surprisingly, acquirers in cross-border minutess gain overpoweringly higher returns of 3.09 % between -2 and +2 yearss.
Cross-border commands make more short-run value than domestic commands.
Chapter 3: Methodology and Data Collection
There are two chief methodological analysiss to analyse acquirers ‘ value: accounting surveies and event surveies. Harmonizing to Bruner ( 2002, p.4 ) an event survey measures “ the short-term unnatural returns to stockholders in the period around the proclamation of a dealing ” . Meanwhile, long-run fiscal public presentation is normally evaluated by an accounting survey, which uses fiscal ratios to compare pre- and post-merger public presentation. However, based on Boateng and Bi ( 2010 ) , fiscal indexs of Chinese public companies do non to the full reflect the existent houses ‘ public presentation, so that there is immense trouble in measuring the public presentation and rating of public companies.
This thesis measures the value consequence of M & A ; A around proclamation twenty-four hours. Therefore, to find the short-term unnatural return, this research will take advantage of event survey to measure acquirers ‘ CAR.
An event survey is a powerful tool to analyze the impact of an event on a company ‘s value and stock monetary value alteration. Most of the anterior surveies on value effects of M & A ; A return are conducted utilizing event surveies ( Brown and Warner, 1985 ; Cave, 1989 ; Franks and Harris, 1989 ) . Harmonizing to Fama ‘s efficient market hypothesis ( 1970 ) , it is assumed that the stock market must expeditiously measure the expected portion monetary value. Li and Zhu ( 2005 ) point out that the Chinese stock market corresponds to this hypothesis, which provides the footing to utilize event survey.
In this methodological analysis, many researches apply the market theoretical account. However, the market theoretical account is restricted in that the appraisal periods before the event must be available. Furthermore, Firth ( 1980 ) believes that the market-adjusted theoretical account, market theoretical account and average return theoretical account can bring forth similar consequences. Therefore, in measuring the short-term unnatural return, this thesis will follow the guidelines of Mackinlay ( 1997 ) , Fuller et Al. ( 2002 ) and Seiler ( 2004 ) in following the market-adjusted theoretical account as the benchmark theoretical account with event Windowss of three-days, five-days, and 21 yearss around the proclamation day of the month of M & A ; A trades.
First, this study calculates the day-to-day normal returns of market and house utilizing the day-to-day close monetary value of the Shanghai and Shenzhen composite indices and acquirers ‘ close stock monetary value severally. Therefore, day-to-day market and steadfast return can be displayed as:
R m, T =ln ( Pi, T / Pi, t-1 )
Roentgen I, T =ln ( Pi, T / Pi, t-1 )
where R m, T is the day-to-day market return and R I, T is the day-to-day house return ; Pi, T is the close monetary value of market index and house stock monetary value in twenty-four hours T ; Pi, t-1 is the close monetary value in twenty-four hours t-1.
For gauging the unnatural return utilizing a market-adjusted theoretical account, most of the unnatural return-generating procedure is based on Brown and Warner ( 1980, pp.207-209 ) . In add-on, harmonizing to Seiler ( 2004, p.220 ) , the expected return of a stock is earned from the market and unnatural returns are the extra stock return modified for the market. With this in head, the unnatural return ( AR ) is generated by the steadfast return minus the market index return, which is computed utilizing the conventional equation:
ARi, T = Ri, t- Rm, T
Where it is assumed that AR is based on the riskless rate for market-adjusted theoretical account ( = 0 and = 1 ) , we can acquire:
ARi, T = Ri, t- Rm, T
where the R I, T is the ascertained house return in twenty-four hours T and R m, T is every bit value-weighted market index return at twenty-four hours t around the event window.
Then we get the cumulative unnatural return ( CAR ) for each acquirer by conglomerating AR for all acquirers at twenty-four hours T in the event period, which is performed in the equation
In footings of the descriptive statistics, each portfolio of M & A ; A trades will be based on univariate average analysis and average difference on two-factors analysis. The t-statistics are shown in the undermentioned expression:
The sample aggregation is guided by the purpose to analyse the Chinese geting houses ‘ short-run unnatural return and market reaction to the M & A ; A around proclamation twenty-four hours.
In this survey, samples must be listed in the Shanghai and Shenzhen stock exchanges. Samples are chiefly selected from the Thomson One Banker database, while secondary informations ( the day-to-day stock monetary value of geting houses, daily Shanghai market index ) are collected from Thomson Financial Datastream. The hunt information of samples includes the industry codification, acquirer, trade value, proclamation and effectual day of the month, and trade position.
Following Uddin and Boateng ( 2009 ) and Dimitris ( 2008 ) , the sample is restricted by the undermentioned hunt standards:
The acquirers must be publicly-limited Chinese companies in the Shanghai and Shenzhen Stock Exchanges. Daily stock monetary value of these acquirers must be available in the Datastream database.
The samples are restricted to those acquisitions announced and completed between 2002 and 2012. Amalgamations must hold completed position ; those with withdrawn or pending position are excluded.
To avoid undistinguished impact, acquisitions in the fiscal industry ( SIC: 6000-6499 and 6700-6799 ) are removed from the sample because of the higher dealing value and frequence.
Acquisition values are more than US $ 1 million.
After the dealing, the per centum of acquirers ‘ portion in the mark house must be at least 50 % .
To avoid overlapping events consequence, houses that engage in any acquisition trades within 90 yearss are besides removed from the sample.
The payment method must be known.
The samples are categorized harmonizing to payment method, type of amalgamation, and geographic amalgamation.
The stock monetary value of samples are halting at proclamation twenty-four hours that are excluded
Samples with utmost value are removed, as are those for which proclamation twenty-four hours is the dealing twenty-four hours.
After enforcing the above limitations, 187 samples are generated from the Shenzhen and Shanghai stock exchanges for measuring the short-term return of Chinese acquirers ‘ stockholders.
187 geting companies in M & A ; A announced and completed between 01/01/2002 and 01/05/2012, 97 listed in Shanghai and 90 listed in Shenzhen.