Research On Market Reaction To Chinese Listed Companies Doing Overseas M&A

Merger and acquisition is an approach to reallocate resources and is well accepted as a way to sustain the company growth. There are more Chinese listed companies, listed domestically or overseas, doing overseas merger and acquisition. In this paper, overseas means areas outside mainland China. In year 2000, there were only 9 such deals, but this number jumped to about 75 in recent years. So, it is important to study the status quo of such deals and judge if the companies are making the right decisions.This paper collects the data of more than 400 overseas merger and acquisition deals made by Chinese listed companies. Through statistics analysis, it finds out the growth rate of deals was more than 10% and most cases were small and medium sized, with average transaction value about 20 to 40 million US dollar. These cases were mainly started by companies that had no prior experience. Also, most cases outside Great China were in North America, other Asia areas and Europe areas, involving high technology, material, energy, finance and industries as the most active areas.Moreover, this paper tries to study the efficiency and effectiveness of such overseas merger and acquisition from the market and investor viewpoint. It focuses on the market reaction to such events. For cumulative abnormal return, this paper calculates data for seven time windows, including day -30 to day +30, day -30 to day +10, day -10 to day +10, day -10 to day +30, day -5 to day +5, day -1 to day +1, and day 0. All these CARs are significantly different from zero and positive, which shows that the investors thought highly positively of such overseas merger and acquisition deals, showing confidence that the companies could benefit from such activity.This paper also tentatively runs regression to do analysis on the factors that affect the size of CAR. Due to the data shortage, unavailability and time limits, regression results are not satisfactory as expected. Three primary conclusions are that the larger the deal size, the higher CAR; if the company acquires a company in different industry, in this paper, mainly the upstream and downstream, then CAR is higher; if the company acquires company in the countries with higher GPD per capita, then CAR is lower. This paper also tries to explain these results using specific deals.