Abnormal Return In M&a Of Listed Firms: Based On Payment Methods

Before 2006, the M&A payment method was limited to cash in China. Under the predicament of single method of payment and the cash insufficiency, firms in M&A invented some China idiomatical methods such as assets swap, creditor's right payment, and debt bearing. Not until 2006, the relevant law changed, a new method named equity payment was introduced, which relieved the bound of cash payment to local firms especially listed firms in M&A. The time of the new law applied that permitted the private issue is not long enough, but the listed firms M&A activities has begun to produce new changes. This paper attempt to discover these changes from the view of abnormal return, reveal the characteristic and the reason. And also try to understand the influence of the new payment method to the interest of relevant party in M&A.This paper selects M&A events occurred between two symbolic moments. The one was full circulation of the secondary market, and the other was the bull market realized the peak in 2007. It is a unilateral research to two kinds of event. The one is listed firms merger private firms, and the other is private firms merger listed firms. These events were classified by cash and equity payment then. The means of event study is applied to these selected samples, and the abnormal returns within 30 days before and after first announcement are investigated. The outcomes of empirical research are contrary to the results of empirical research overseas. Namely the equity mergers and bidding firms gain positive abnormal returns. Considering the merger motivation of sample firms, the empirical result accord with the actual merger activities under the policy guidance of industrial integration, and also provides positive arguments for the capital market effect of this kind of M&A.