An Empirical Study On The Motivation Of Listed Companies' Tender Offer In China

The M&A activities of capital market of China have become more and morefierce recently. The relevant Chinese experts are studying the motivation andperformance of M&A. However, most of studies are just theoretic analysis, and thespecific analysis of motivation of listed companies' tender offer are far from beingadequate. We always use Free Cash Flow Hypothesis and Internal Capital MarketHypothesis to demonstrate why the enterprises engage in M&A activities, but thequestion is can the two hypothesizes be really applied in Chinese listed companieslike other counties? This is the core research question of this thesis.The author samples the listed companies of Shanghai and Shenzhen whichconducted tender offer between 2002 and 2004 under Chinese unique context. Thepositive study is also used to examine whether the Free Cash Flow Hypothesis andInternal Capital Market Hypothesis have the ability to interpret the Chinese ListedCompanies' motivation, trying to explore the further reasons why M& A happens, andto pose some advices to regulate M & A activities.Two conclusions can be drawn from this paper: First, the larger the cash flow, thehigher the agent cost. The free cash flow may have obvious negative effect onaccounting profit after tender offer, but both cash dividend and liability have positiveeffect on the reduction of agency cost of free cash flow, that is to say, Free Cash FlowHypothesis has strong capability to explain the motivation of Chinese ListedCompanies' tender offer. The current tender offer of Listed Companies is a kind ofexcessive investments. Second, the degree of regulation of financing makesindifference on the performance of the Chinese listed companies after tender offer,that is to say, the Internal Capital Market Hypothesis is not able to explain themotivation of current Chinese listed companies' tender offer.