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Foreign mergers and acquisitions of listed companies in China market reaction

Author: Anonymous From: www.yourpaper.net Posted: 2010-04-10 10:03:21 Read:
Author: Wang Yurong Zhang Shuyan Hu Chunlin
[Abstract] In this paper, the event study methodology to conduct empirical research market reaction to the merger announcement. The results show that the impact of visits from the general M & A events is positive, and the impact of this market effect by the largest shareholder property.
[Keywords] M &; excess yield; market reaction

The premise of effective capital markets, the company's share price changes to reflect the impact of the various events. M & A is the major decisions of the company, announced M & A events, the M & A market their expected price changes reflected. In this paper, the event study method empirical research market reaction to the merger announcement. This event is the announcement of the release of the M & A transactions, if the market is to be regarded as positive, after the announcement of the company's stock price will rise, we will observe the phenomenon of positive excess yield; Conversely, if the market is as bad, will be observed in the rate of negative excess returns. Therefore, the calculation and analysis of foreign mergers and acquisitions event cumulative average excess rate of return (CAR) to examine the impact of the acquisitions incident from the overall positive or negative.

First, the sample selection and data sources

This article manually collecting the target of foreign mergers and acquisitions from 1999 to 2008, 58 foreign M & A events for the initial sample excluded the following companies, according to the following criteria: First, if foreign mergers and acquisitions event announcement does not exist 150 consecutive trading days, the announcement future there is no sample of 20 consecutive trading days. M & A events announcement within 20 trading days after the occurrence of other significant events that may affect the stock price movements, such as publish annual reports and other samples. And if the same company repeatedly merger and acquisition matters, only take the first merger and acquisition matters as the study sample. Based on the above, we end up with 47 merger announcement as the study sample. WIND database data sources for this study, the Shanghai and Shenzhen Stock Exchange announcement information.

Second, the empirical analysis

(A) analysis of the market performance
As can be seen from the the CAR trend (Figure 1) Overall, the event period [20 ,20], the CAR of the sample companies after the merger announcement over their yields before the announcement is basically around 0 fluctuate. Announcement day, CAR surged on announcement day, the the CAR value reached 1.5921 percent, after the publication date CAR continue to rise in the 16 days of publication date CAR maximum, maximum 2.5036%, subsequently, CAR began decreased, but CAR still has been at the top of 0. In contrast, in the M & A event announcement before the [-20, -2] within 18 days, CAR basically around 0 fluctuations, no significant difference between 0 and -9.8971% in the seven days prior to the announcement CAR, but with 0 was also no significant difference. CAR is the cumulative excess return rate to a certain extent, it reflects the positive response of the market for M & A announcements events to enhance the target company's share price, which is a declaration of foreign mergers and acquisitions. It is noteworthy that the announcement effect of M & A announcements in the announcement two days ahead of the release, which is China's capital market imperfections.
(B) of the M & A Performance Factors Influencing Their results
Preliminary information from the above analysis of the cumulative average excess rate of return (CAR) trend Overall, foreign mergers and acquisitions event to the target company the positive effect of the market, to enhance the value of the target company. However, the impact of specific factors on the company's market reaction for different companies, there may be differences. Well, what factors affect the market reaction of the sample companies? Based on the literature and data availability factors will affect M & A performance grouped into the following categories: foreign investment as the largest shareholder of the target company's industry, the type of business of the target company, M & A and pre-merger performance of the target company.
In this paper, a linear regression approach to establish the following regression model:
CAR = 0 1 X 1 2 X 2 3 X 3 4 X 4 5 X 5 6 Size
The dependent variable is CAR, the cumulative excess return rate, were used to a different window to test. The explanatory variables Xi (i = 1,2,3,4,5), factors affecting the performance of M & A, they are dummy variables. Whether the which, X 1 foreign large shareholders (such as the largest shareholder, compared with 1, otherwise 0); X 2 as target company industry attributes ( manufacturing industry, and non-manufacturing); X 3 M & A correlation (correlation is not related to 0); X 4 for the type of target companies (state-owned enterprises, otherwise 0); X 5 (related to mergers and acquisitions before the target company's management performance indicators higher than the behavior level, compared with 1, and 0 otherwise). Size scale control variables.
It has been a variety of models to evaluate the performance of the target company management. This article uses the E.Tylor Claggett pipe model, that the management of the company's performance is mainly divided into the ability to grow and cash operating Index (net operating cash flow / operating cash). Indicators reflect the ability to grow net capital gains rate (ROE) ROE turn, sales profit margin, total asset turnover and financial leverage constitutes, is the result of three factors working together. The sales profit rate reflects the product profitability, total asset turnover reflects the turnover rate, financial leverage reflects the ratio between equity capital and borrowings. In the assessment of the return on net assets and cash operating Index former dominated the latter, giving the former as the primary reference standard that is inconsistent between the two indices. In this paper, to classify the samples according to the ROE, the less than or equal to the industry median is defined as poor management performance indicators, defined as the management performed better than industry average.
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Table 1 reports the regression results of the model can be seen in (-10,10), (-5,5), (5,10) during the events, foreign shares the largest shareholder, the regression coefficients are positive , and significantly greater than zero. This suggests that foreign investment is the largest shareholder is an important factor to affect the performance of foreign mergers and acquisitions. Foreign investment is the largest shareholder of the target company performance significantly higher than foreign investment is not the largest shareholder of the foreign target company performance. Variable X5 coefficient in three events during the period was negative, indicating that foreign mergers and acquisitions, the worse the performance of the management of the target company, the better the performance in the post-merger. Although this effect, but this effect was not significant. This may be because the outside world in the short term is not very understanding of the target company's management performance, the performance of the market in the short term and not significant this effect. The variables X3 (M & A correlation) regression coefficient is always negative, but not significantly. This suggests that acquisition-related target company performance, but the effect is not obvious. This is because the majority of foreign mergers and acquisitions business is a world-renowned enterprises, strength, strong management capabilities, corporate diversification has been a good experience, so this factor did not produce much of the market performance of the M & A impact. Variable X2 (Target Company Industry Attributes) (-10,10), (5,10) events during the regression coefficient is negative, in the event period (-5,5) events during the period of the regression coefficient is positive, but the effect in 10% level is not significant. Variable X4 (target corporate types) regression coefficient is always negative for the target company, foreign mergers and acquisitions of state-owned enterprises is worse than the non-state-owned enterprises, but this effect is not obvious. Third, the conclusion


This paper aims to use the event study methodology to examine the impact of foreign mergers and acquisitions incident on the target company's share price. Foreign investment by using univariate and multivariate model validation whether the performance of the target company is the largest shareholder, and other factors. The test results show that: the foreign mergers and acquisitions event overall significantly improve the stock price of the target company to create value for the shareholders of the target company, but because of the imperfections of the Chinese market, this effect market early release out; foreign investment is the largest shareholder the target company's market performance was significantly higher than foreign investment is not the largest shareholder of the target company's market performance; management performance of the target company in the pre-merger the worse, the better market performance, but this effect was not significant; acquisition-related goals company's performance, but the effect is not significant; certain randomness industry attributes the impact of this factor on the performance of foreign mergers and acquisitions.
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