An Research On The Determinants Of Merger Targets Based On The Time-dependent COX Model

What kind of company is easier to become merger target after the split share structure reform? With the split share reform completed, the ownership structure of listed companies in our country is able to straighten out. China’s capital market entered the era of full circulation, and established the real listed companies control market. Full circulation pattern changed the value evaluation system of acquisition, provides a gradual market-oriented pricing mechanism. To a great extent, this promoted the increase in the number of mergers and acquisitions. New era background and equity structure has come, research on the characteristics of target company become meaningful after the split share structure reform.At present, there is plenty of research on merger and acquisition using a great deal of statistical theory and method, including survival model which has certain advantages, especially the COX model, which has a natural advantage for the event issues. However, most of China’s researchers are doing research mainly based on fixed covariate COX model, seeing the financial indicators is fixed in a certain period of time. They used to find a way to transform the panel data problem to cross section data. At the same time, most of the literature focus on the large number of financial index selection, and then based on the relationship positive or negative to judge the effect for mergers and acquisitions. But, there wasn’t much significant indicators, and most of them focus on the prediction, not the internal causes.This article empirically investigates the listed companies taken over in China’s A share market from2007to2012. By using the time-dependent COX model, we analyze the target companies’ characteristics from five aspects:the maturity of the company, the efficiency of management, the financial liquidity, corporate governance, and the opportunities of growth. We select a total of13variables to study the characteristics of the targets by using the time-dependent COX model. This model is an extension of the fixed covariate COX model, but it can change the financial variables to the model year by year. This study found out the characteristics that significantly affect a company’s chances of being targeted by acquirers and the hazard rate of the characteristics.We found out that company size, time to market, ROE, financial leverage, operating cash flow divided by total assets, quick ratio, and Herfindahl₃is significant in the model. The results show that, the bigger the company is, the longer the company is listed in the market, the worse the management efficiency, the more likely the company is to become the target of an acquirer; while the better the financial liquidity is, the higher the financial leverage is, the more concentrated the equity is, the less likely the company is to become the target of an acquirer.At last, this paper summarizes the faults by using COX model for prediction, and has made discussion about the selection of critical value, and gives a new way of thinking depending on the time-dependent COX model by an example.