Research On The Effect Of Information Transparency On Mergers And Acquisitions

The market of mergers and acquisitions(M&A)in China has arisen no more than 30 years,but growing rapidly and has a promising prospect.From the corporate side,M&A is one of the most essential investments and operation decisions and also one of the most direct modes to achieve exogenous growth.From macro side,each merger wave had powerfully influenced and changed the shape and direction of the economy.With the unique superiority in promoting industrial restructuring and optimizing resource allocation,M&A is playing an increasingly important role in the new age of Chinese economy,which is in the processing of deepen reform,industrial sectors upgrading,and regional economies adjustment.Openness and transparency is not only the principle of modern law-based society,but also the cornerstone of sustainable growth of market-oriented economy.As information is the basic element of market and the foundation of economic entities to make their own decisions,so information transparency has a widely influence on economic activities.Especially,the academic community has not only undertaken fruitful research,but also drawn numerous solid conclusions in the area of how information transparency affect capital market.However,the effect of information transparency on control market has not been paid enough attentio n.The vital function of financial industry is promoting prosperity of real economy by broaden and deepen capital market.There is no doubt that capital market provides a basic platform for control market.The other way around,control market becomes an essential way for capital market to optimize allocation of resources.They are closely tied to each other.So the research on information transparency effect should not been limited in capital market,but ought to make unify analyses of both capital market and control market instead.There are still some problems to be further explored in the existing literature: ?.The analytical framework needs to be improved.Most of the existing literature examine the impact of information asymmetry between the two parties of an M&A deal only,but ignore the impact of information asymmetry between M&A companies and capital market.However,these two types of information asymmetry cannot be replaced,nor can they be considered separately.It's easy for us to draw preconceived conclusions based on existing knowledge by using an incomplete analytical framework.?.The research perspective is relatively concentrated.Most of the existing research examine the role of information in M&A from a single level of accounting information quality.However,in reality,the average information cost between a company and external investors cannot been completely determined by the quality of accounting information.Therefore,the existing research only analyze a signal level of the M&A information mechanism,and still be short of analysis from a more comprehensive perspective.?.The research methods need to be improved.The existing M&A target selection research matching their samples based on market value and industry standard.This kind of methods have the problems of estimation coefficient bias,unstandardized samples in the pairing group,and the reduction of data informativeness.These problems finally resulted in distorted empirical research results.?.Systematic research needs to be done.As far as I know,there is no systematic research about information transparency effect in M&A field,with the whole view from trading motivation to trading behavior to trading effect has been done so far.That makes the understanding of the information mechanism in the control market relatively one-sided and incomplete.Under this circumstance,this research aims to systematically explore the information mechanism and its boundary conditions in M&A,including targets selection,acquisition premium,and announcements market reaction.This research has been conducted under a trilateral information asymmetry analysis framework of control market,from a comprehensive perspective of information cost of capital market,with the route of “motivation-behavior-effect”,using a sample of Chinese A-Share listed firms that were acquired and a random sample of listed firms that were not acquired during the period 2009-2018,employing logistic probability model,OLS model,and event study,based on the theories of M&A,information asymmetry,principal-agent and behavioral finance.The main findings and conclusions are as follows:?.Information mechanism and its boundary conditions of target selection in M&A.The empirical study finds that the information transparency of a firm has a significant negative impact on the possibility of it will being acquired.This kind of impact is more prominent when a hub airport geographically proximate.Moreover,a firm's headquarter geographic overlap with a top-tier advisor will enhance that impact too.These results demonstrate that the M&A market has an information opacity governance mechanism.Mispricing,signal of management level and private information are the channels of information transparency impact on target selection.The financial intermediaries of M&A have an information spillover effect of geographic overlap.Hub airport geographically proximate reduces bidder's search cost before acquisition and supervision cost after acquisition.Geographic characteristics could reduce the information asymmetry between two parts of an M&A deal by enhancing the information stream and by reducing the information cost.?.Information mechanism and its boundary conditions of M&A pricing.The empirical study finds that information transparency of target firms has a significant negative impact on acquisition premium.On average,when analyst forecast accuracy raises 10 percent,acquisition premium declines 2 percent.When Stock Exchange Rating reaches a higher level,acquisition premium declines 2.5 percent.For the sample in this research,it will totally save 3.2 billion or 4 billion RMB for bidders in 2018.The sensitivity of the acquisition premium to the information transparency of the targets increases during merger waves,however decreases after investor protection policy implementation.These results have shown that target opacity is a key factor for bidders to pay more.The differences of information discount factors between bidders and market investors determine the information M&A pricing mechanism.And the exogenous shocks of merger waves and investor protection policy implementation influence the marginal contribution of the mechanism by changing the relative discount level.? .Information mechanism and its boundary conditions of M&A market reaction.The empirical study finds that the information transparency of target firms has a significant positive impact on acquisition market reaction(measured by announcement-period cumulative abnormal returns).Investor inattention and threats of large shareholders expropriation reinforce this effect,however shareholding ratio of institutional investors has no obvious influence.These results demonstrate that information transparency is a determinant factor of target shareholders' M&A announcements wealth effect.Marginal information transfer capability,investor information risk,and principal-agent concern are the channels of information transparency impact on M&A market reaction.The lack of transparency results in investors' insufficient response to good news and limits the efficiency of market price discovery.The market discounts for opaque target do not change despite they receive premium.Investor attention as a kind of scarce resource has value effects.The threats of expropriation by large shareholders make outside investors wary of investing,dampening the market's reaction to the good news.The main innovations and contributions of this research are as follows: Frist,improved the integrity of information asymmetry analysis structure of M&A by analyzing the influence of two different kinds of information asymmetry simultaneously.That means this research incorporates the information asymmetry between M&A companies and capital market into the existing analysis framework.Second,expanded the research perspective of information role in mergers and acquisitions.By using the analyst forecast data,high-frequency intraday market data,and stock exchange rating data,this research explores how information transparency effect on M&A from a more comprehensive market perspective instead of the original accounting information quality perspective.Third,preliminarily established a theoretical basis of research on the effect of information transparency on M&A,by drawn a whole picture of information mechanism and its boundary conditions in M&A,including targets selection,acquisition premium,and announcements market reaction.Fourth,examined the geographic overlap information spillover effect of M&A financial intermediaries for the first time.A large body of literature has argued that geographic overlap will bring the investors significant information advantage.The information effect of geographic overlap between bidders and targets has caused for concern.However,whether investment bankers play a positive role in helping bidders to overcome information barriers has never been tested.So this research examined the information spillover effect of top-tier investment banks geographic overlap and provides new evidence.Fifth,used a completely random matched control group with a sample size close to that of the experimental group in target selection research in China for the first time to overcome the problems of maximum likelihood estimation coefficient bias and distortion of empirical results in previous studies.Last but not least,by using the Great Circle Distance Formula of spherical geometry,this research calculated hub-airport distance of listed companies and empirically discussed the influence of geographical distance on M&A activities in China for the first time.In summary,this research enriches the existing literature about information asymmetry of M&As.In addition,this research has some certain realistic enlightenment meanings: First,deepen the understanding of M&A activities.Second,provides theoretical basis and specific suggestions for the regulatory authorities to formulate necessary policies.Third,provides corresponding M&A strategy advice to both sides of the transaction.Last,offers specific investment recommendations to investors.