The Long-term Market Performance After M&A Of Listed Companies In China

Extensive research has been done with the reason for business to expand its borders and how firms perform in the short-term and long-term.There are two different methods from the point of view of how to measure the M&A performance to study the performance of the general M&A, including financial performance and market performance. From the point of view of time , the study of the performance of M & A is divided into those that before and after the acquisition announcement date which is the short term event study and the long-term event study of 3-5 years after M&A. Some research has been carried on about mergers and acquisitions performance in China's stock market using the methods and perspectives mentioned above. However, the study of long-term market performance is inadequate. The structure of this paper is as following:The first part is introduction, including the background, motivation and innovation of this paper are presented in this part.The second part is devoted to the theoretical foundation and literature review. In first section studies of M&A long-term market performance are reviewed. It is showed that mergers and acquisitions of foreign listed companies have a negative long-term market performance. And the research involving long term market performance of M & A in China stock market is also reviewed. In the second section, this paper summarizes the hypothesis which explain the factors influencing the long-term market performance of M&A, including EPS Myopia Hypothesis, payment Hypothesis, Performance Extrapolation Hypothesis and the empirical research related to the hypothesis. We also review the study involving factors that have an impact on long term performance of M&A in china stock market. The third part is divided into theoretical analysis and the assumptions which are the foundations of the empirical research. This paper presents four assumptions, the first assumption is M&A market performance are negative; the second assumption is after M&A, the value firm's long-term market performance is better than the glamour firms'long-term market performance. The third assumption is State-owned holding company's long-term market performance is superior to non-state-owned holding company's long-term market performance; The fourth assumption is that the long-term market performance of M & A involving related transactions is worse than long-term market performance of M&A not involving related transactions.The fourth part is devoted to research methods and sample selection. This part first introduces the long-term event study method, the BHAR model and how to choose control group, and then the detail of the research methods used in this paper .In this paper, M&A of 1998 to 2004 in China stock market are selected as a sample and the reference criteria is as following (1)Date of event announcement to acquire shares or assets are acquired; (2) If the same company occurred in many mergers and acquisitions within one year, only the first is selected; (3) Due to the special nature of the financial industry, the company of the financial sector are to be removed;(4)The availability of the date of M & A announcement, financial statements of the previous year and 36 months` return after M & A.Data sources are from the CSMAR of State Information Technology Co., Ltd. At the same time, a detailed description of the monthly distribution of the sample, M & A types, characteristics of sample industry distribution are presented.The fifth part is the empirical analysis. The results show that (1) in general in the 3 years after M & A ,market performance of companies are declining.This result is consistent with those of western scholars and some of our Chinese scholars. (2)It is found that glamour firms outperform value firms within 3 years after M&A. The results are in contraryt to the theory and empirical evidence in western countries. It does not support the performance extrapolation hypothesis. (3)It is found that state-owned holding company in the long-term performs better than non-state-owned holding company after the acquisition . (4)In the classification of corporate mergers and acquisitions involving related party transactions and those not involving related transactions, it is found that in the short-term and long-term there is no significant difference. But In the medium-term there are significant differences. Tunneling and propping theory together can explain this anomaly.The final part is the conclusion of this paper. In our country, if mergers and acquisitions is at an early stage in order to promote the realization of state-owned assets to improve efficiency in its use and solve the idle state-owned assets, save waste and even the loss of those assets, then mergers and acquisitions as a means of business expansion, it can make our business bigger and stronger in the integration in the world economy today. In order to better adapt to the increasingly fierce international competition environment, but the premise of the acquisition must be based on improving operational efficiency and decentralizing business risk.In this paper, the post-merger market performance confirms the decline in its financial performance. This should raise the concern of business operators and investors. Business enterprisers are responsible for the success or failure of the company. Corporate M&A is a major decision-making, often involving tens of millions and billions dollars. If mistakes are made, then the huge capital have been in vain. So whether a merger should happen must be considered with great caution. The majority of investors to invest in mergers and acquisitions should also have a clear understanding of what the reason for the M&A is.Government can guide economic behavior but it does not mean it can substitute for the rules of market economy. The role of government departments should be reflected in its operation in accordance with the laws of market economy, as well as for the practical needs in mergers and acquisitions activities.