The Theoretical And Empirical Study On The Value-Creating Effect Of Cross-Border Mergers And Acquisitions On Target Firms: Evidence From China

From a departure point of empirical study on the effect of cross-border mergers and acquisitions (M&As) on the performance of target firms, this article follows the traditional research pattern, which first reviews the extant empirical researches in this field then introduces the characteristics of foreign acquisitions in China as well as its economic effect. Following is the theoretical explanation of the mechanism behind the effect of cross-border M&As on the performance of target firms from the views of FDI, corporate strategy and corporate governance. Finally, this article employs the standard event study methodology as well as accounting data analysis to examine the short-term wealth effect and long-term performance of Chinese target firms. It finds that the overall CAR during the event window is statistically insignificant, namely cross-border M&As have little effect on Chinese target firms in the sample. However, the CAR over a shorter event window (-2, 2) rises to 3.35% which is significant. This finding implies that, at least immediately before or after the announcement date, being acquired by the foreign company is good news for the shareholders of the target firm. As to the long-term effect of cross-border M&As, we find the average ROE and EPS increase in the following year of the event, which implies that inbound cross-border M&As enhance the performance of Chinese target firms. We also test the difference in performance between different types of equity control and find performance is better when foreign company has the majority of equity interest of the target firm.