How Does Market React To The M&A Announcements Made By Chinese Acquirers?

As one of the most important methods for effective allocation of resources,M&Amarket develops quickly in China after the split-share reform in2005. And withfurther implementation of opening-up policies, it’s widely believed that M&A wouldhave huge potential of development in China. However, up to now, there is still noconsensus about whether such a huge amount of M&A deals made by Chinese firmscan create value for their shareholders. Further, no domestic paper has studiedwhether M&Amade by Chinese firms can create synergy or not.In order to give answer to these two questions, this paper collects a sample of119M&Adeals of Chinese public companies acquiring other public companiesduring the period from2001to2012. Then standard event study is adopted to measurethe short-term M&Aperformance of both parties. By comparing the significance levelof cumulative abnormal returns of ten different event windows, I find that the eventwindow of [-3,3] captures the impact from M&Aannouncement best, and furtherdraw the conclusion that M&Adeals announced by Chinese acquirers can create valuefor both parties, and synergy is created as well.After this, this paper tries to find out the factors that influence the M&A wealtheffect. According to the results of multivariate regressions, I can figure out that, foracquirers, relative size of acquirer to target and cash position of the target arenegatively correlated with their cumulative abnormal return, while book-to-marketratio of the target and leverage ratio of the acquirer or the target are positivelycorrelated. For target companies, on the one hand, relative size, book-to-market ratioof the acquirer and their own cash position are positively correlated with their CAR,on the other hand, their own book-to-market ratio and the cash position of the acquirerare negatively correlated.Lastly, this paper finds that M&A deals with features of higher book-to-marketratio and leverage ratio of the target, same industry and higher percentage acquiredwill be able to create more value for the society.