Empirical Analysis Of Hostile Merge Performance

Since the end of1990s, with the setting up of the capital market in China, M&A events have been continually taking place, and become more and more popular nowadays. M&A becomes major ways for domestic enterprises to seek fast-developing. At present, whether is merger and acquisition a feasible way for enterprises in our country to seek fast-developing? These problems are demanding to be studied. The paper had studied10M&A events happened during September30,1993to April10,2002in China. Under our country’s special capital market background we study the short-term and long-term performance of the acquiring firms theoretically and empirically, the main content are as follows:Under our country’s special market background, we analyzed both the short-term and long-term performance of the M&A firms, in our country the targeting companies are mainly unlisted companies. The analysis of theory demonstrates that there exists an illiquidity discount for targeting companies’ shareholders who would like to accept a discounted price in merger. The model suggests that merger will improve the liquidity of the targeted companies’ equity, which would increase the valuation of the equity. Thus in short-term, buying an unlisted company will increase the wealth of the merging firms’ shareholders. Nevertheless, in long-term, the performance of the merging companies could decrease because of inefficient internal capital market. The theoretical analyses also get the same conclusion.Event study has been used to verify the short-term performance of the acquiring companies, Shareholders of acquiring companies obtain insignificant positive accumulative abnormal return. Changes in financial performance and overreaction of market cannot explain the acquiring companies’ positive CAR. Buying premiums offer partial explanation to the short-term performance improvement of acquiring company. The explanation also displays the purpose of hostile acquisition, which is the speculative motive, the opportunistic practice result in the increase of the equity in the short-term.Finance indicators of research methods study the long-term performance of the acquiring companies, We select10listed companies and study the financial indicators in accordance with the year of pre-merger, the year of merger and the year after the year of merger. And the methods are mainly the principal component analysis. The study finds that the composite score difference of the three years is insignificant, which demonstrates that hostile acquiring have not significant effect on the financial performance.Combining the research conclusion of both short-term and long-term performance of acquiring companies, the author suggests that the market misevaluation theory offers the partial explanations for positive short-term announcement effect of M&A event, in short term the market value of the targeted companies had been underestimated, the acquisition premium is got by the merger in short-term, which leads to the increase of short-term market value, but over a long period of time, the acquisition premium will disappear, which results in that the acquisition premium is the same as before, if taking the difficulties of merging after acquisition into consideration, the hostile acquisition probably lead to the decrease of effect of M&A event.In a word, results of empirical studies and theoretic analysis indicate that under the country’s special capital market background, shareholders’wealth of the acquiring firms always gains positive increase during the M&A event in the short run, nevertheless, shareholders’wealth of most acquiring firms suffers loss in the long run. The paper believes that at present, the size of the listed companies in China are relatively small. The listed companies in our country produced strong expansion motive because of the advantage condition of outside financing. Nevertheless, too much relying on the outside capital to realize the fast development of the acquiring firms may be impractical. It is often the case that the assets’quality and stock price of the acquiring firms constantly decline with the expansion through merger.