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Study On The Factors And Effects Of Related Party M&A Of China’s Listed Companies

Posted on:2015-08-01Degree:DoctorType:Dissertation
Country:ChinaCandidate:X Q JuFull Text:PDF
GTID:1109330467465993Subject:Business management
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As an emerging market economies, the period of China’s capital market is still short,so it has not yet reached the marketization in the true sense; the listing system of the initial Stock-Liquidity Reform also brought a lot of historical problems, and the ubiquity of related party M&A(RPMA) of listed companies is the product of this background.RPMA is an activity which takes place among listed companies and the large shareholders, or other associated parties controlled by the large shareholders. Objectively speaking, RPMA is just a special form of related party transactions, which has nothing to do with legitimacy. However, as the RPMA is non-market-oriented mostly, present researches mostly focus on its negative effects, paying less attention to the positive ones. As large shareholders have absolute right to control and manipulate RPMA, they can either use this approach to gain their private benefit, or help the listed companies from financial distress, and also to integrate resources in order to achieve optimization of industrial structure and improving operational efficiency. From the perspective of large shareholder control, the RPMA behavior will be screened and the analytical framework will be built in this paper. Using samples of2008-2010non-financial listed companies which carried out RPMA successfully, and by combining the theoretical analysis methods and empirical research methods, the dissertation discusses the influencing factors and evaluates the marketing effects and financial effects. Conclusions of this study are summarized as follows:1. RPMA is a common phenomenon in China, and have been taking greater proportion than unrelated party M&A in the total M&A transactions. The frequent occurrence of RPMA is associated with the special institutional background of China’s capital market, as well as the listed companies’highly concentrated and pyramid ownership structure.2. Based on the hypothesis of "tunneling","propping" and "optimization of industrial structure", this article sums up the motivations of RPMA into three categories——large shareholders transfer interest into firms (A type), large shareholders tunnel resources out of firms (B type) and resources integration (C type). The large shareholders occupy the minority shareholders’ interest by means of selling low-quality assets to listed companies, inflating the value of injected assets, offsetting listed companies’ debt with low-quality assets, replacing assets with listed companies by selling shoddy assets, or buying highly selling cheaply. And the ways which large shareholders make use of to transfer interest to listed companies include injecting lots of high-quality assets into companies, deviating the low-quality and non-performing assets from the companies and replacing the majority shareholders’ high-quality assets with the listed companies’ low-quality assets. RPMA to integrate resources which aim at achieving the purpose of optimizing industrial structure, reinforce market competitiveness, improve industrial concentration, or achieve industrial transformation and upgrading.3.The thesis, on the basis of analyzing the motivation of RPMA under large shareholders control, further explores the influencing factors, the result is:(1)The state-owned companies with less proportion of independent directors, lower growth and smaller size are more likely to be associated with RPMA.(2)The companies which are in trouble or on the verge of loss, with higher financial leverage and smaller size are more likely to be associated with A type RPMA.(3)Companies have lower financial leverage and good financial condition are more likely to be associated with B type RPMA. But when the second largest shareholder has a strong ability to balance, this behavior can be effectively curbed.4.Using Event Study to analyze the market effects of M&A, We can conclude that:(1)Compared to the unrelated ones, RPMA has a more significant short-term announcement effects.(2)Before the announcement day, C type has a higher CAR than B type, and B higher than A.(3)The market can capture relevant information before the official acquisition announcement is released.(4) After two days of announcement or so, CAR of the three types have all reached a peak.(4)The good effect of A type can not last long, investors cannot derive sustainable excess returns.(5)The CAR of B type and C type have no significant differences. It indicates that, in the short term, the market cannot recognize the motivation of RPMA, and investors do not care about what kind of assets the firms will buy or peel.5.Accounting indicators are used to analyze the financial effects of RPMA. The empirical research shows that:(1)Compared to the unrelated ones, RPMA has a lower overall financial effects.(2)The differences between the financial effects (the data of the later year minus the earlier) increase, and then decline, whether it is related or unrelated. What’s more, the financial effects of RPMA fall even more sharply.(3)The improvement of financial performances of A type is remarkable, although the overall level is still below the B and C.(4) The financial effects of C type are higher than B after the first year of merger, which shows that the integration effects or expropriation effects have emerged. However, the differences between the two don’t reach significant levels.Compared with previous studies, the innovations of this paper are:First, based on China’s actual conditions, the research constructs an analytical framework and does specialized systematic research on the base of the related studies. In this analysis process, we try to take in a variety of theories or hypotheses ("tunneling" hypothesis,"propping" hypothesis,"Optimization of industrial structure" hypothesis) to explain the same behavior (RPMA). Further more, we overcome the shortcomings of previous studies which mixed all kinds of M&A together. So the research process is more refined and targeted, and the results are more fit and convincing.Secondly, the analysis about factors which influence the RPMA indicates that those firms with poor business performance, high financial leverage, or small size are easier to involve in A type RPMA; the firms with low financial leverage, low growth, or weak balance of second largest shareholder are more likely to involve in B type RPMA. These findings are useful for investors to identify the motivation of RPMA, government can also rely on these findings to strengthen supervision.Finally, from the analysis of effects, we find that RPMA is a useful approach to "rescue" a firm in trouble. The financial effects of C type is slightly better than B type, but the differences are not significant as we have imagined, it indicates that few large shareholders (especially those state-owned ones) will tunnel the firms out wholly, because this will kill the large shareholders themselves, unless they can escape immediately. To some extent, the result of this research can explain why the big shareholders do expropriation frequently, but most companies are still able to survive.
Keywords/Search Tags:Large Shareholder Control, Related Party M&A, M&A Motives, Influencing Factors, M&A Effects
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