Against the backdrop of surging numbers of overseas mergers and acquisitions (M&As) made by Chinese firms, the aim is to study whether Chinese firms’ overseas M&As can bring wealth effects to the acquirers, and analyze the factors that affect wealth effects.
Cross-border M&As made by mainland Chinese firms between 1986 and 2013 are selected from the SDC Platinum global M&A database as the sample; the event study method is used to calculate the cumulative abnormal returns (CARs) of Chinese firms’ overseas M&As; factors affecting wealth effects are divided into three levels – firm level, deal level, and host country macro level – and multiple linear regression is used to test the effects of these factors.
Chinese firms’ overseas M&As have significant and positive wealth effects. Among the firm-level factors affecting wealth effects, firm size has a significant, robust, and negative effect on CAR; the ratio of cash held by the bidder before the deal has a significant and negative effect on CAR, but the results are not robust. Among the deal-level factors affecting wealth effects, relative deal size has a robust and positive effect on CAR; whether being a hostile takeover has a robust, significant, and negative effect; and choosing cash payment for the deal has a partial negative effect . Among the country-level factors affecting wealth effects, the target country’s degree of financial development has a significant, robust, and positive effect on CAR.Research limitations/implications
This study has its limitations, including: omission of the variable ‘industry life cycle’; considerable changes in China’s macroeconomic situation during the studied time span; the sample comprising only M&As made by listed firms; governance structure and management characteristics not considered.Practical implications
Besides paying particular attention to such factors as the firm size of the acquirer, cash ratio, relative deal size, friendly M&A, ratio of cash payment, and the degree of financial development in the target country, regional governments should learn from the failed M&A cases about the deficiencies in the institutional environment and financing environment faced by Chinese firms in their overseas M&As.This study provides the existing literature on cross-border M&As with empirical evidence from emerging economies and developing countries; systematically examines – from the firm, deal, and macro perspectives – the factors affecting Chinese firms’ overseas M&As; provides evidence for the claim that the coordinated development of economy, finance, and society is the most fundamental institutional support for value creation through corporate M&As; and expands the scope of research on cross-border M&As.
Up to five words
Cross-border M&A, wealth effect, determinant, China
Source : Emerald Publishing (2015)