Gains to Chinese Bidder Firms: Domestic vs. Foreign Acquisitions

Abstract

This paper examines whether foreign acquisition of Chinese firms improves share price performance relative to domestic acquisitions. The results show that foreign acquisitions are not associated with positive abnormal returns in the short‐run, but that they are so associated for domestic acquisitions. Foreign acquisitions also realise significant long‐run gains, especially when the acquiring firm is large. Specifically, we find that there is a significant, positive long‐run outperformance of 29.81% for large foreign acquisitions benchmarked against domestic ones, while large foreign acquisitions earn 22.39% in aggregate. Our evidence suggests that large Chinese acquirers gain when they expand their operations abroad, consistent with the literature on reverse internalisation.

The effect of government involvement and payment method on merger and acquisition performance: the case of China

“…Second, we also extend to the literature on the choice of payment in M&A transactions. We show that contrary to substantial empirical evidence that cash-financed acquisitions is preferred ( Draper and Paudyal, 2006, Fu et al, 2013, and Black et al, 2015, our study shows that in the Chinese context, shareholders perceive that stock-financed acquisition maximise the wealth gains. Third, our study also conducts a comprehensive analysis of the effect of government involvement in acquisition in relation to the payment methods.…”

“…This indicates that the influence of Chinese government has not yielded substantial positive announcement gains for shareholders. A probable reason could be that shareholders view that government involvement may undermine sensitivities of investment, and thus lower future cash flow and weaken returns (e.g., see Black et al, 2015). However, the mean difference is not statistically significant.…”

“…Additionally, Fu et al (2013) find evidence that stock-financed acquisitions (overvalued acquirers) increase target's stock price and lower acquirer's stock price. In regard to cross-border and domestic M&As, existing literature find that globally, cash offers create more return to bidding firm shareholders than stock offers (Black et al, 2015).…”

“…Therefore, government involvement in acquisition may influence bidding firm positive abnormal returns. On the contrary, government support can be counterproductive, leading to value-losing acquisitions (Black et al, 2015). Chen and Young (2010) document investor negative reaction to cross-border M&As of Chinese firms with government involvement.…”

Does corruption distance affect cross‐border acquisitions? Different tales from developed and emerging markets

“…'Debt/equity ratio' is calculated as the total debt divided by the total equity of the acquirer. Black et al (2015) argue that cross-border acquisitions involving larger acquirer firms realize significant long-run gains. Accordingly, we control for the size of the acquirer firms using total assets.…”