The Effecets Of Mergers And Acquisitions Strategies On Firm Value

Investment is an important part of value creation for firms, and merger and acquisition is one of investment ways. In recent 20 years, firms’value creation is a popular study discussed diligently by scholars from here and aboard. And the effects of investment strategy on firm is an important part of this study. It is suggested that the evidence from china of this study is urgent. So I examine the long-term valuation consequence of investment in mergers and acquisitions on acquiring firms through the "anticipation effect," in which forward-looking prices embed investors’expectations about the profitability of firms’future acquisitions. Using a sample of 1,548 firms with past acquisition activities from 754 listed companies between 1998 and 2010, I find that their market valuations depend on both the profitability of their past acquisitions and their current free cash flow. Specifically, among firms with positive free cash flow, those with the worst history of value-destroying acquisitions experience lower market valuations. Among firms with negative free cash flow, the history of value-destroying acquisitions is not systematically associated with firm value. I also find the industry has a significant impact on the research, which is the research result only is established in the manufacturing industry. And I examine these firms with more than one acquiring activities, investment strategies still has a significant impact on the value of the firms.