An Empirical Research Of The Determinants Of The Choice Of Payment Method In China's Mergers And Acquisitions

Global Merger and Acquisition (M&A) activity has grown dramatically over the last 10 years, and the M&A market in China has been becoming more and more active. M&A is one of the most important approaches to achieve the optimization of resources. Through M&A transactions, corporations are able to expand their firm size and reduce competition of the market in order to enhance their competence. Meanwhile, M&A is also a rapid means to enter into a new industry and thereby adjust the firm's developing strategy.M&A is similar with other kind of transactions, which include the choice of payment method. Given the large size of many M&A transactions, the decision of payment in M&A can have a significant impact on an acquirer's ownership structure, financial leverage, following management and operation, and subsequent financing decisions. Considering those aspects, it is meaningful to examine the choice of payment method and its determinants. This research is based on China's transactions, focusing on data of the listed bidders of China.The samples are selected from all acquisitions announced over the 8 years between 1998 and 2004 by bidders listed both in Shanghai and Shenzhen securities exchange markets. Data of samples are obtained from CSMAR China Listed Firms M&A Research Database, CSMAR China Stock Market Financial Database, and CAMAR China Stock Market Trading Database. Four subsamples, which are cash, combination of cash and assumed liabilities, assumed liabilities and revised debt repayment condition, are four value of independent variable which is named as PAYMENT. Because there are only 6 acquisitions financed with stock in the database, so stock payment is excluded in this research in order to avoid bias. Nine factors are designed initially, which are financial leverage, bidder size, tangible assets, market to book value, relative size of the transaction, cash flow value, bidder active, target's listed status and industry. Only six of them are included in the final model. Market to book value and bidder active are excluded because of high correlation coefficients with other factors. The results of multinomial logistic regression and binomial logistic regression shows that financial leverage, tangible assets, target's listed status and industry are statistically significant, while bidder size, cash flow rate and relative size are statistically in significant. The sign of financial leverage is negative with expectation, that is, the financial leverage is positively related to the use of cash in an acquisition, and bidders of the transactions that are accomplished by revising debt repayment condition always accompanied by a low financial leverage. The results also interpret that a firm's percentage of tangible assets has a strong positive influence on the preference of cash, and when the target is not listed or it is in the same industry with acquiring firm, then the bidder is more likely to use cash. The conclusion of this research is mainly consistent with the results of the studies abroad, but some of the factors do not show significance in the regression. An explanation is that the nature of sample is different from those of foreign market.