Empirical Study On M&A Performance Based On Tunneling Or Propping Motives

Enterprise merger and acquisition is the eternal theme of capital market, China is no exception. Since China’s first M&A case "Baoyan event", the M&A activities have gradually become active in China’s capital market. Especially after the share-trading reform, M&A as the means to optimize the allocation of resources is more frequent, resulting in M&A market’s unusual liveliness. These M&A cases are so complex, that people are increasingly concerned with the motives hiding behind the complicated behavior. The scholars, with their curiosity about why M&A parties loved to initiate mergers and acquisitions, worked out theories about M&A motives, resulting in their continuous development. So far, theories interpret M&A motives mainly contain Arrow’s Synergetic Effects Hypothesis, Roll’s Hubris Hypothesis, Jensen’s Free Cash Flow Hypothesis, Shleifer and Vishny’s Arbitrageur Hypothesis and tunneling and propping and so on.As Andrade said in his conclusion after a summary of the literature related to M&A motives, any theory of M&A motives with powerful explanation force must established in the special institutional environment. Considering the actual circumstances of the ownership structure of listed companies in China, this paper select to study the performance of M&A from the perspective of tunneling and propping. In China, listing corporation "alone big" is not rare; this special ownership structure determines the listing corporation’s largest shareholder is often the controlling shareholder. If the external environment of the corporation cannot conduct effective supervision and punishment to the controlling shareholders, the controlling shareholders have motives and ability to occupy the interests of minority shareholders by making use of their controlling advantages. However, the controlling shareholder are not always tunneling company, they may also support the company. If the listed company is experiencing operating difficulties, facing the risk of being suspended, or the listed company wants to re-finance in the capital market, the controlling shareholder may also be support to help listed company achieve a particular purpose. And M&A is one of the main ways of controlling shareholders’tunneling and propping. For that reason, this paper develops a keen interest in the M&A cases out of tunneling and propping motives, and conducts an empirical study on how the two motives affect the performance of M&A.This paper is divided into five parts. The first part is the introduction, which describes the background and significance of the research and the logical framework of this paper. The second part is the literature review and comments, which reviews the studies related to tunneling, propping and M&A performance from both foreign and domestic. Through reviewing the previous studies, this paper expects to not only be inspired but also summarize and improve the insufficiency. The third part is the introduction of M&A and related theory, which defines the concept of M&A, tunneling and propping, introduces the theory of M&A motives and the theory of major shareholders’behavior as well. This part lays a solid foundation for the following empirical analysis. The forth part is the core of this paper, which studies the relation between company performance and tunneling, propping motives with the help of SPSS17.0through empirical testing methods, and comes to the conclusion:the M&A activities out of tunneling motives will significantly reduce the listed corporation’s performance; the M&A activities out of propping motives will significantly improve the listed corporation’s performance. The last part draws conclusions according to the previous theoretical analysis and empirical test, and puts forward relevant proposals.The main contribution of this paper are about two points:first, from the research angle looks, according to the current studies of the motives of M&A from the aspect of tunneling and propping in China, the vast majority are based on the study of tunneling behavior, also part of the studies are based on the study of propping behavior. But there is few articles study from both tunneling and propping aspects. This paper studies the relationship between performance and tunneling and propping at the same time from both theoretical analysis and empirical research. Second, from the research methods looks, most scholars often use separate one or several indicators to measure performance when they study the relationship between performance and M&A motives. This paper uses factor analysis method, which uses a set of indicators system instead of separate financial indicators. This method can more comprehensively reflect the general performance. At the same time, through normality test, we find there’s an enormous gap between sample data and normal distribution, so this paper selects nonparametric test which is not limited by the sample distribution shape and sample size, in order to arrive at more accurate results.