The Empirical Test On M&A Effect:Diversification Or Professionalization?

Behavioral finance is widely concerned by more and more academics as it is a crucial field in financial research. It breakthrough considerable assumption of rational-economical-man and explore how cognitive psychology and social psychology affect humans’ belief and preference,which make impact on their financial behavior and asset pricing, by observing, describing and measuring about humans’belief, preference or sentiment. The analysis of investors’sentiment and limited arbitrage are two basic theories of behavioral finance, by which we can analyze securities’ prices and their yield rates in detail. For Chinese stock market, investors’cognition of the market is relatively irrational and instable. Therefore, Chinese stock market not only supplies perfect laboratory of behavioral finance research but also has practically meaning to do this research.Through the study of the sentiment and behavior of the market, firstly, we can see clearly about the decision making process and reaction mechanism of the market in an entity in order to make deeper understand of the market. Secondly, the study of preference and cognitive bias also help us to know about the way of ours decision of investment, to identify the exist and potential irrational behavior, and to improve their self-knowledge and self-control. Subsequently, all of these measures can educate investors and improve the efficiency of the market.This paper discovered a "Profession Preference"(or "Diversification Aversion")may exist in capital market through observing a part of the investors’ behaviors, which indicates investor prefer corporations use "professional" operating strategy but kick out those use "pluralism" strategy only because their multiple operation character. This decision making logic seems perfectly rational and investors take it for granted. However, after summarizing the domestic and foreign research about the relationship between the multiple operation strategy and corporation value and doing the empirical test to the selective sample, author find that it shouldn’t exist different preference between "Professional corporation" and "Diversification corporation" for a rational investor.In order to verify that whether the obvious bias we observed widely exists in market, we firstly applied event study methodology to test the existence of the "Profession Preference" and "Diversification Aversion". The results indicate that in [-4,14] time-window, the ACAR of the "Multiple" sample is significantly negative compared to "non-multiple" sample, which implies that "pluralism aversion" significantly existed in short-run. Nevertheless, when we examined the [-4,18] time-window, the ACAR of the "professional" sample was somewhat positive compared to "unsure-type" sample, which implied that "Profession Preference" existed in shot-run, but is weaker and more instable than the "Pluralism Aversion". We can conclude from the two samples’empirical test that there is4days early response in merger and acquisition events of different industries, but the information impact attenuated15days after the date of declaration. We also found the information impact is robust in all the samples. Therefore, depend on previous empirical study, we can make sure that there is a "Profession Preference"(or "Pluralism Aversion") in China A stock market.This paper tries to discuss the causes of "Profession Preference" from the perspective of culture and custom. We examine the impact on people’s belief, preference, cognition by culture and custom and how the intuition and prejudice are established. This paper argues that the "concentration" sentiment in culture maybe the cause of "Profession Preference" or "Diversification Aversion". Specifically speaking,"concentration" culture may promote people to build some available intuition, which can simplify their decision process. This "impulse" intuition will affect people’s behavior to cause "Profession Preference" emotion. On the other hand,"concentration" may promote people to establish a certain degree of stereotype for humans always more concern about bad news. As we know, stereotype is more stable and hard to change than intuitions. This mechanism provide an explanation about the empirical test result that "Diversification aversion" is stronger than "Profession preference".This paper mainly has three innovations:(1)On the base of observation, we applied event study methodology to testify the existence of "Profession Preference" sentiment in our A share market, which is a new exploration about the preference of the investors in Chinese capital market. (2)This paper tries to explain the causes of "Profession Preference" we found in research from the perspective of cognitive psychology. We discuss potential reasons from the formation and psychological effect on intuition and preference. Although these explains are not very comprehensive or mature, author trusts that this attempt a exploration to provides us more understanding of "Profession Preference" effect. What’s more,we also somewhat promoted the research on the asset price distortion as a result of cognitive bias which caused by culture and custom.(3)On the perspective of research method, this paper controlled industries, scale and years, then calculate and analyze the difference of average CAR by using event study methodology, which is considered more precise than sorting method used before.