How Oversea M&A Announcement Affects Stock Price Of The Listed Chinese Companies Who Initiate The M&A Event

In recent years, especially since2009, there has been a big change taken place in M&Amarket within China, significantly affected Chinese listed companies. The newphenomenon is that instead of being acquired by foreign companies as what was used to be,Chinese listed companies are taking more active acquisition strategy oversea under theencouragement from Chinese Government, and the “Go Global” strategy has since itsannouncement day (back in1999) encountered the best time to fully fulfill its goal. Due tothe2008severe global economic recession, many foreign companies are suffering from badconsequence of poor general global economy.And some companies even have to sell outpart of its business to maintain profitability.However, during the crisis, China is coping well and has stood out as the largest growthpower even during the harsh time.Our research starts out to pore over the stock market’s response towards those “GoGlobal” listed Chinese companies, to identify are there benefits in general for our listedChinese companies, who decide to take over an oversea business. We assume oversea M&Ainitiated by Chinese big companies, in general, can arouse market confidence in theirstocks.In our research we adapted the most recognized methodology, named “Event Study”,as our tools to analyze the trend of the their average abnormal return rate (AAR)and thecumulative abnormal return rate(CAR). As well we use CAPM model to estimate themarket price of the stock if there was no M&Agoing on. Then compare the estimate valuewith the real world stock price to evaluate the extend of the impact that a M&Aannouncement can have on those companies’stocks.Our assumptions are: First, market attitude towards the stocks of those companiesshould be positive in general. Second, regards to the well gossiped Energy and Resourcetype of oversea M&As, Market attitude should be as well in general positive since Chinesegovernment is backing them up.Our conclusions positively support our assumptions. In our study, we find that overalloversea M&As can trigger positive market expectation, so both Short-term andMedium-term CARs are demonstrated as positive. While for Energy and Resource type ofoversea M&As merely short-term benefit is found.