The Empirical Study Of The Chinese Market For M&a Announcement Reaction

The study examines the market reactions towards all 7524 M&A announcements from 1994 to Sep.2010 involving Chinese listed companies. The results of the event study show that the market has a significantly positive reaction towards M&A announcements, and the average abnormal return is 2.44% for target and 0.89% for bidder on the event day. There are also significantly negative cumulative average abnormal returns (CAAR) from 20 days to 60 days after the event, for both bidder and target, which indicates the short-term speculation on the event or the quick confidence loss of investors towards M&A announcements. Besides, from the significant positive CAAR for both bidder and target from 60 days to 20 day prior to event, the information leakage situation exists in the Chinese market. The further event study analysis and the regression models of the cumulative abnormal returns indicate that market has shown much more positive reactions towards cross-border M&A deals, both for the event day and for the window 20 to 60 days after the event day. Besides, larger-sized M&A deals are seen with more potential profits and more risks as well, so more early-informed investors are willing to join the target companies before the events while investors are also more easily to leave the companies after the M&A announcements. Furthermore, the market reactions towards first M&A announcements and M&A deals with Chinese listed companies as both bidder and target are similar to the reaction towards the whole sample, which indicate the imperfection of current regulations of Chinese stock market.