| M&Aactivityandthe cross-shareholdings phenomenon have become increasingly frequentin China’s capital market, but the existed research, have rarely taken into account the combination of two issues.This paperstudies the M&A events under the circumstance in which the cross shareholders who hold shares of both parties at the same time.It will focus on exploring how it affects acquisitions includingits performance and motives.At first we take the merger case of Meiling and Sichuan Changhong as an introduction. In this case, we found a fact:around the M&A announcement, Meiling shareholders suffered losses of2.23%, while Sichuan Changhong shareholders gained18.98%profit. Sichuan Changhong Electronics Group Co. Ltd. holds the shares of the two companies at the same time, holding30.63%of Sichuan Changhong, Meiling7.76%, we aggregate the announcement effect, and find it eventually got gains more than10,217,130,000yuan. Event study presents the result:during the acquisition, the acquirer’s stock price fell, the negative return for acquirer,the target company’s share price rose, the target company generated positive returns, while cross-shareholdings held both shares of acquirer and target, even in the acquirer shares suffered a loss, but target share made up compensation. Compared withsuch only-acquirer shareholders, cross-shareholders can be more motivated to promote a merger and acquisition, especiallyin thenegative announcement mergers.To illustrate this phenomenon presented in the case is not a coincidence,this paper presents evidence using the111M&A events(both acquirer and target are listed company) in China stock market from2008to2011to demonstrate that some cross share-holders have significant effect on the announcement abnormal return of corresponding parties, including the acquirer,the targetand the cross-shareholders.Even these shareholders lose money on acquirer while they can make up their losses from targets. We firstly calculate the cumulative abnormalof both parties basing on the market model event study method. The empirical results show that M&A announcement effect of the acquirer is negativeand the announcement effect of the target is significantly positive, and it stands the highly position with previous studies. However, considering the cross-holdings can change the assessment of a merger, we need to adjust the estimates of M&A Performance, thenwe separately calculate thereturn of cross-owners and the acquiring shareholders returns adjusted by the cross-shareholdings shareholders, then compare the yield differential of these various shareholder groups. We select M&A eventswhich have negative announcement effect assubsample, the market reaction for acquirer and targetare-4.43%and8.38%respectively, the average return of cross-shareholders is1.3%, the adjusted acquirer return adjusted by the cross-shareholdings is-1.04%.There are conflicts of interest between the two types of shareholders in the merger:the only acquirer’sshareholders realize negative announcement effect, but cross shareholdersachieve positive announcement effect, which indicates that the internal contradictions exist among the shareholders group, the listed company have the second class of the principal-agent problem, in short, a conflict of interest between shareholders.Another aim of this paper is to illustrate cross-shareholdings factor may be one of the factors that lead to the the acquirer’s negative market expected performance, thereby we introduced multiple linear regression model to validate this assumption. The results show:the proportion of cross-holdings shares have a negative correlation between the acquirer’s CAR(-1,+1),(-5,+5),(-10,+10), and the three event windows support this conclusion at significant level10%,5%,1%respectively.The general structure of this paper is as follows:Part I the introduction, describes the research background, significance andmethods. And introduce a merger case Meiling and Sichuan Changhong merger to lead in;Part II the literature review, a review of the research status about the cross-shareholdings and mergers and acquisitions motivation;Part III the theoretical analysis, proposesthree hypotheses based on and the literature review and theoretical analysis; PartⅣthe empirical analysis, select the2008-2011M&A events(both both acquirer and target are listed companies) as samples, empirical analysis are based on the event study methodology and multiple linear regression model;Part V the empirical results;Part Ⅵthe conclusion.The main contribution of this paper are:This research is a groundbreaking one in domestic research area, whichhas great theoretical and practical significance. Undercross-shareholdings context, we find that the cross-holdings factorinfluences M&A announcement return of related parties:acquirer, target, cross-shareholders and the adjustedacquirer returnadjusted by cross-shareholding.We find a possible M&A motivation-the cross-shareholdings factor may explain the mystery of the loss value of acquiring shareholders-that is, cross-holdings factors had greater possibility to support bad merge becauseit holdsstakes on both sides, which generate natural links, and have direct and convenient channelsto transfer interests. The market expectsthis situationand holds negative expectations on such mergers and acquisitions.Overall the cross-shareholdings affect the M&Aperformance and M&A motivation. |
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