Empirical Research On The Influence Of Stock-for-Stock To Acquiring Firms’ Market Performance

The Reform of Non-tradable Shares in China has an important influence on the M&A activities in our capital market. Before the Reform of Non-tradable Shares, acquirers often pay in cash because the value of tradable shares and non-tradable shares are different. After the reform, more and more acquiring firms began to pay in stocks and shares. And Stock-for-Stock began to appear in our capital market. Meanwhile, large shareholders’ motivation to conduct M&A activities has changed after the reform. It will have a positive impact on the performance of listed companies after M&A. Thus, it is worth to research the acquiring firms’market performance after Stock-for-Stock.In order to provide useful information for the acquiring firms’management, the paper has examined whether stock-for-stock create value for the shareholders of acquiring firms, and researched the short-term and long-term market performance of acquiring firms’ after Stock-for-Stock, as well explored the relationship between the characters of Stock-for-Stock and the acquiring firms’ market performance.Based on the analysis of relevant theories about how M&A influencing the firms’ performance, the paper selects Stock-for-Stock cases of listed companies in our stock markets from2006to2010as a sample, by researching the variation of acquiring firms’ stock price in study period, uses the event study method to examine the short-term market performance and uses the BHAR method to examine the long-term acquiring firms’ market performance after Stock-for-Stock.The paper’s main content and viewpoint is as follows:The first part describes the background and significance of the theoretical analysis of Stock-for-Stock.The second part introduces the definition of mergers, acquisitions, and Stock-for-Stock, distinguishes the target firms and acquiring firms, explains the performance of financial and market. Then it summarizes the researches of the performance of mergers and acquisitions from the aspect of short-term and long-term. After appraising the advantages and disadvantages of different research methods, the paper choose the event study method and BHAR method to do research.Part three analyzes relevant theories about how M&A influencing the firms’ performance. And it analyzes how the Reform of Non-tradable Shares in China influencing the M&A activities. Then it put forwards the research assumptions: Stock-for-Stock will have positive impact on the acquiring firms’short-term and long-term market performance, and the related mergers and acquisitions’ performance will better than the non-related, the state-owned acquiring firms will better than non state-owned acquiring firms.Part four empirically examines the short-term market performance of acquiring firms after Stock-for-Stock. It also explores the relationship between the characters of M&A and the acquiring firms’short-term market performance. This research has found that acquiring firms can obtain significant positive CAR during the window period, the related acquisition’s performance is better than the non-related acquisition, and the state-owned acquiring firms are better than non state-owned acquiring firms.Part five empirically examines the acquiring firms’long-term market performance after Stock-for-Stock. It also explores the relationship between the characters of M&A and the acquiring firms’long-term market performance. This study indicates acquiring firms’shareholders doesn’t obtain buy-and-hold abnormal return, Stock-for-Stock doesn’t have significant effect on the long-term performance. And there is no difference between related and non-related acquisition, state-owned and non state-owned acquiring firms.In the end part, we get conclusion of the study and put forward three relevant proposals.The main contribution of this paper is in the following aspects:Firstly, the research about the performance of Stock-for-Stock is very few in the domestic, this paper empirically examines the market performance of acquiring firms after Stock-for-Stock transactions, enriched the M&A’performance study. Secondly, the paper researches both short-term and long-term market performance of acquiring firms after Stock-for-Stock, explores the relationship between the characters of M&A and the acquiring firms’market performance, the study is relatively comprehensive.Thirdly, this study indicates acquiring firms’shareholders doesn’t obtain buy-and-hold abnormal return, other scholars indicates acquiring firms’ shareholders suffer heavy loss in long term, thus the conclusion is different from others.In this paper, a certain amount of limitations still exists, such as the study doesn’t take the macro-economic factors into account and the study period is not long enough.