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Empirical Research on Performances of Listed Companies with Mergers and Acquisitions in China

Author: ChenSi
Tutor: JiangYueXiang
School: Zhejiang University
Course: Finance
Keywords: Listed companies Event study Performance Drivers Motivation Synergies
CLC: F276.6;F224
Type: Master's thesis
Year: 2009
Downloads: 684
Quote: 6
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Abstract


The growth of a company can be achieved by a number of different ways, however, among the various company growth methods, merger and acquisition (M&A) may be the most common one due to its low-cost and effective nature.As the capital market in China developed at top speed, numerous activities of mergers and acquisitions have been emerging since 1998. As is often the case with other developed countries, whether M&A creates value for the shareholders of either the target or bidder firm has become a very important question to answer. There are a lot of literatures studying the market reaction to merger announcements in both short and long term in US and European countries. But for China, there have been very few studies that comprehensively examine the performance effects of mergers and acquisitions.In this paper, empirical research is conducted on the performance of M&A activities in China. Bidder and target listed companies of China are selected into the sample over the period from 2005 to 2008.1 measure the wealth effects for bidding and target firms by calculating the cumulative average abnormal returns (CAARs) in an event study. I then also investigate the value drivers of bidder and target abnormal returns and the predominant reason for M&A.The performance of M&A found in the analysis is very similar to the result of the previous literatures of UK and USA, with positive announcement effects for the target firms but insignificant announcement effects for the bidder firms. In this research, I consider the factors of the method of payment, the different industries, and the different stock market, the different fiscal year, the type of M&A. Our results suggest that all these factors can bring different result of the performance: for bidder companies, stock market and the method of payment are the important factors, while the stock market also the significant factor for the performance of the target companies. For the motivation analysis, synergies are the prime motivations for bids. There are three innovations in this paper: first of all, I use Event Study which is a more rigorous method in the paper; Secondly, I study the performances of both the bidder and target companies with mergers and acquisitions, however, only one side is studied by former research, and I also do research on the drivers which may affect the performances. Third, based on the former study of motivation theories of M&A, we do some empirical research on the motivations of mergers and acquisitions of listed companies in China.

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CLC: > Economic > Economic planning and management > Economic calculation, economic and mathematical methods > Economic and mathematical methods
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