Comparative Study On Merger Performance Of Listed Company In China And USA

Mergers and acquisitions waves have deep effect on both economic entity and a particular enterprise. We have already experienced six large M&A waves in the world economic history, each one changed the economic pattern a lot. M&A in emerging markets have already been active recently, as one of leaders of emerging markets, Chinese capital market shows high enthusiasm in M&A. It is of great significance to study empirically performance after M&A under this background. Is the performance improved after M&A? Do M&A help enterprises to develop? As the representative of mature capital markets, what's the difference between the merger performance of Chinese listed companies and American ones, and the possible reasons? Is the performance of conglomerate acquisitions better than those of vertical or horizontal ones based on synergy value? All of the questions above need to be solved urgently, the relative studies are helpful to adopt right merger and acquisition strategies, choose appropriate targeted firms for companies, and location his own role correctly and make decisions to make influence on mergers for governments.With operational performance evaluation of the performance of M&A, this paper describes the characters of Chinese capital markets, investigates empirically merger performance in both Chinese and American capital markets, and compares those two during the 2002-2006period. It also investigates performance of M&A between state-owned enterprises and private ones, conglomerate acquisitions and those were not. We also use long-term event-study as an auxiliary methodology to confirm the result under operational performance evaluation.The results show that while the merger performance in American capital markets improved inconspicuously, the improvement in Chinese capital markets is much more significantly, but the total performance seems to drop down in the third year after the merger activities. The tendency implies a short duration and non-continuation. The asset-liability ratio of the listed companies in both two countries goes up steadily, the difference is that the ratio in our listed companies is much lower than the level of its industry, but higher in American public companies. Those companies in China seem to have enough money.Further studies shows it is a very important reason that state-owned enterprises and private enterprises exist the "dual structure" in the capital markets, the early occurrence of mergers and acquisitions state-owned enterprise performance is better than private enterprise, and in the third year after the acquisition the performance of state-owned enterprises declined, and lower than private enterprises, this suggests that government intervention make the performance of state-owned enterprises mergers and acquisitions significantly improved in the short term, but downward in the long run. Government's intervention on mergers for political achievements has a large influence on the performance of state-owned enterprises.This article also analyzes comparatively the performance of the diversity and relevance M&A, finds that this two types of M&A increase in the first and second year after merger, but decline in different degree in the third year, the performance has not been continuous improved in the long term. The overall performance of relevance is better than of diversity in the short term, long-term performance shows different signs.From traditional theories such as synergistic effect and agency theory, M&A motives with Chinese characteristics, the special structure in Chinese capital markets and financing channels, this paper analyzes the statistic results above. Traditional theories could provide interpretation in some degree, while synergistic effect made merger performance of the two participation sides improve, agent theory and overpayment to the targets decreased the performance. Motivation for mergers and acquisitions with Chinese characteristics:adjustment of industrial structure helps the synergistic effect play its role and improve long-term M&A performance; tunneling and propping motivation linked to qualification of rights offering and stock issuing, controlling shareholder of "dominance", the lack of appropriate control mechanism, and the main purpose of hollowing out the listed companies only harm or improve the short-term performance of listed companies; opportunistic acquisitions motivations is to obtain public status through the acquisitions of shell resources to achieve their financing needs, then use insider trading to reap huge profits, acquisitions under this motivation do not focus itself on long-term business development, M&A performance is difficult to play a role in long-term and effective support. The unique structure of China's capital market:the state-owned enterprises has the greatest influence of the main body in China's capital market with absolute proportion, and its close relationship with the government enabled the government to implement its direct intervention in economic activities or direct input to the interests of listed companies, but kinds of short-term impact of intervention. Diversified acquisitions eliminate backward production capacity, restructure economic to the emerging and those with potential development industries, they contribute in the long term synergies and improvement of performance of mergers and acquisitions. China M & A financing channels are limited, the limitation of China's M & A loans by 2008 and government's great support, the state-owned enterprises have enough money to lead asset-liability ratio in our country relatively lower than United States.This paper puts forward some relative suggestions at last:mergers should lay emphasis on listed companies'profitability in the long run, government intervention should reduce, relax the constraints of financing channels and establish effective supervision mechanism and internal control mechanism in the listed companies to control agent behavior of management.