Empirical Study On The Influence Of Acquisition Motives To The Performance Of Chinese Public Firms

As an important mean to redistribute resource on the capital market, Acquisition has a remarkable influence on company development, and it has been becoming a very popular research field in corporate finance in recent years. Because of the complexity of acquisition, distinguishing different motives will be very important to the research of the performance of acquisitions and relative issues.Using a sample of public firms that have taken part in acquisitions during 2001-2002, we investigate acquiring firms and target firms'CAR during the period of merger announcement. Empirical results show that target firms'CAR are significant positive while acquiring firms'CAR are not different to zero; then we develop a discriminant function which contains acquiring firms'CAR, ex-ante accounting information and firm characteristics to subject the acquiring firms to multiple discriminant analysis (MDA). Statistic results show that there are higher ROA and ROE in the synergy-motivated acquiring firms than in the agency-motivated acquiring firms, so ROA and ROE become important index to identify whether acquiring firms'motives are benign or not. We also investigate acquiring firms'post-acquisition long-term performance.Empirical results show that synergy-motivated acquisitions associate with an average increase in post-acquisition long-term operating performance, meanwhile, agency-motivated acquisitions associate with a decrease in post-acquisition long-term operating performance. Results indicate that synergy-motivated acquisitions outperform agency-motivated acquisitions up to two years following the acquisitions.Our research indicates that, on average, acquisitions do not create value. Both acquiring firms and target firms'post-acquistion long-term performance don't increase. By implication, acquisitions are pursued at the expense of the acquiring firm rather than in the interest of the acquiring firm's shareholders. Identifying the motive for the public company acquisition will be beneficial for more effective supervision, higher efficiency and more favorable operation on capital market.