A Study On The Pro-Cyclical Effect Between Investor Sentiment And The M&A Of Listed Companies

Since the 1980s, plentiful evidence of economic history has proved that the investors on capital market and the managers of enterprises are not entirely rational, and the traditional "Efficient Market Hypothesis" has been fiercely shocked by reality. The rising or depressed investor sentiment may lead to the mispricing of stock,which deviates from its basic value systematically, and further more, it can profoundly influence the economic entity investment. On the other hand, the decisions of corporate management will also significantly influence the investor sentiment, and the effect reflects in the form of share price fluctuation.In this paper, it studies the relationship between investor sentiment and M&A behavior of listed companies from the perspective of time, which is researched in the order of events. Firstly, this paper uses the binomial Logistic regression to test the influence of investor sentiment to companies’M&A behavior. Then the result shows that the proxy indicator of investor sentiment positively correlates with whether listed companies implement M&A.Secondly, it examines abnormal return(AR) and cumulative abnormal return(CAR) during the merger announcements though the event study method, which reflect the short-term impact of M&A on investor sentiment. The One-Sample T test of average AR and CAR during window period shows that the share price rises significantly after merger announcements, and investor reaction is highly positive. What is more, it substitutes turnover rate for rate of return as proxy indicator of investor sentiment to make a robustness test.Thirdly, it uses multiple linear regression to test the fluctuation of investor sentiment after the observation period of M&A for a long time, then it finds that listed companies’M&A behavior has a positive effect on investor sentiment in half a year.In this paper, the research not only enriches existing theoretical research, but also provides rational guidance for investors and managers’investment, and improve the efficiency of the M&A market.