Research On The M&A Announcement Effect Based On Investors Limited Attention

Mergers and acquisitions is a common phenomenon of the capital market. However,the Chinese stock market and the information disclosure system are not perfect, whichmake the information on mergers and acquisitions leaked before the bulletin. Theinsider who has the priority to receive information makes mergers and acquisitions asubject matter of speculation and big price manipulation, that bring about abnormalfluctuations in stock price and trading volume. Especially near the announcementbefore and after, the trend of the abnormal fluctuations is more severe in stock pricesand trading volume, causing significant changes in short-term wealth effect. Clearly,the investor don’t respond inappropriately to bulletin, but there is over-reaction.Behavioral finance studies have shown that the investor who is limited attentioncan’t completely pour full of energy to all available information. Instead, the investoroften considers the part of information that attract his attention. And thus this leadinvestors over-reaction or under-reaction. Accordingly, this paper selected2316M&A announcement released by A-share listed companies on Shanghai and Shenzhenstock market from1995to2011as the study sample. Meanwhile, we makecumulative abnormal returns and cumulative abnormal trading volume as a proxy ofthe wealth effect and the limited attention to variables.The study found that: a) Theswells and dips of cumulative abnormal returns indicate the reason that investors payattention to the merge and acquisition is not its future value effect, but the effect ofshort-term speculation by the leakage. b) Investors pay different attentions toannouncements on different week days, and management of listed companies choosethe options when publishing merger and acquisition announcements. As a result,investors show a different degree of response to mergers and acquisitions. Then, theshort-term changes in the wealth effect has significant characteristics of the calendarweek. c) Due to the limited attention, investors have much difficult conducting acomprehensive attention to stock fundamentals such as the company’s financialcharacteristics, governance characteristics, but often only to be concerned about aparticular aspect of the firm characteristics, which will further exacerbate thereactions of excessive behavior made by investors. Therefore, in the impact of limitedattention, investors easy to overreacting on mergers and acquisitions, causing theoccurrence of the short-term changes in the wealth effect.