Do Cross-border Mergers And Acquisitions Create Shareholder Wealth?

Recently, there are continuously increased cross-border mergers and acquisitions (M&A) both at home and abroad. Statistics show that from 2002 to 2015, there are 2018 cases of M&A conducted by Chinese companies, while 1817 are cross-border ones, accounting for 90%. Chinese companies hope to reduce costs by the horizontal acquisition of target companies; or to further improve the upstream and downstream industry chain through vertical mergers; or to integrate global resources by mixed M&A. However, since the culture and institutions of companies and many other factors are involved in cross-border M&A, Chinese companies encounter many difficulties when doing so. Do such M&A create shareholder wealth? In other words, how does the stock market react to such M&A?Cross-border M&A is a hot topic for scholars worldwide. Foreign scholars have studied a lot to explore whether it can create shareholder wealth, but they have not made a unified conclusion. Some studies indicate a positive and significant correlation between cross-border M&A and shareholder wealth, and some studies indicate a significant negative correlation between the two, while some studies deny the significant relationship. However, foreign studies all take foreign companies as their data base, and there are significant differences between Chinese stock market and the ones overseas. Besides, domestic scholars rarely study the relationship between cross-border M&A and shareholder wealth. Some Chinese scholars make a case study in this respect, while some scholars study the subsequent integration when the M&A are finished.The literature review of recent studies on M&A helps to find that culture distance and M&A experience are the most studied factors affecting the wealth effect of cross-border M&A, and few scholars have made a comprehensive study from the perspective of the nation, the industry and the company. Therefore, this paper mainly studies two issues:firstly, whether the cross-border M&A made by Chinese companies can create shareholder wealth; secondly, which factors will affect the wealth effect of cross-border M&A. This paper will examine the influence of cross-border M&A on shareholder wealth of listed Chinese companies during the process when they seek their way of development, as well as make a systemic and multivariate analysis of the influencing mechanism.The cross-border M&A made by Chinese A-share listed companies in Shanghai and Shenzhen stock market from 2000 to 2014 are taken as samples, while the event study is adopted to calculate the cumulative abnormal return and the standard cumulative abnormal return of the selected companies in the event window. Thus we can see how the market reacts to the company’s cross-border M&A, or whether such M&A create shareholder wealth. Then a multiple regression analysis model is used to analyze factors affecting wealth effect of cross-border M&A in terms of nation, industry and company.The empirical results show that Chinese companies’ cross-border M&A will create significant and positive cumulative abnormal return, indicating that investors or the stock market generally holds a positive and supportive attitude towards M&A. Cross-border M&A shall still be a strategic choice for Chinese companies to implement the "going-out" strategy, enhance their market power, reduce costs, and enhance global competitiveness. The multiple regression model results indicate a positive correlation between the investors’attitude towards the cross-border M&A and the host country’s free economic system, the host company’s diversified structure, the scale of M&A and their rich international experience. While, a developed host country, a related industry, the high-tech industry, the company scale, the M&A experience of the host country and its governance will have a negative influence on its wealth effect.Combined with the empirical results of factors affecting wealth effect of Chinese cross-border M&A, the following suggestions are proposed. Firstly, Chinese companies shall carefully select the host country location and the acquisition targets. Secondly, they shall avoid being "overconfident", but putting their experience of M&A and the experience collected as a host into practice, thus laying a foundation for the following acquisitions. Finally, they need to enhance their integration capabilities, and overcome problems caused by large technical differences between the two companies or the information asymmetry.