Empirical Research Of Market And Operation Risks Affected By M&A

Under the China’s new normal phase, China’s development is facing the severe pressure of environment, resource, population and employment. On the one hand, the macro economy through the enterprise merger and acquisition activity can realize the rational allocation and utilization of resources, promote the optimization of industrial integration; On the other hand, enterprises can achieve rapid growth through mergers and acquisitions the external expansion. But practice shows that Mergers and Acquisitions( M&A) has a great risk, which is even the largest enterprise risk behaviors. Based on the perspective of behavioral finance theory of M&A and endogenous factor of enterprise growth theory framework, this thesis consider the merge and acquisition activity influence on enterprise risks,and further explore the correlativity between long-term market risk or operational risk in M&A and the investors and managers’ irrational behavior characteristics or the enterprise growth ability. Existing financial study take market-to-book ratios as overall using to reflect investors’ expectations for the value of the company. In this thesis, we using the method of accounting multiplier to decompose the market-to-book ratios into two factors of mispricing and growth opportunities. By dismantling the market-to-book ratios of digging potential connotation, we extract expectations from the investor sentiment and fundamentals information, and respectively discusses its effects of long-term market risk and operational risk of bidding enterprise after mergers and acquisitions from target enterprise mispricing and growth opportunities.This thesis selects China Shanghai and Shenzhen A-share listed company’s M&A events as a sample from January 1th, 2004 to December 31 th, 2013. The study found target enterprise stock mispricing is higher, the bidder will increase after the acquisition of long-term market risk. This empirical support from the perspective of behavioral finance theory of M&A, namely the systematic irrational behavior of investors to the company’s share price has brought the mispricing. Tender corporate decision makers take advantage of this bias tends to trigger mergers and acquisitions, but managers often excessive self-confidence, Which is reflected in their overestimation for the synergy effect of M&A, the target company’s neglect forward mispricing, and when return to the rational, which species partial mistake is corrected, the bidder will bear the resulting long-term market risk.The research also found that the higher the target business growth opportunities, the more bidders will increase long-term business risk after the acquisition. Although this is contrary to the assumptions of this thesis, but according to the theory of endogenous factors and corporate M&A theory of business growth, the paper argues that this result caused for two reasons of "decalcified" issues and "integration" problems. On the one hand, the ability of target enterprise for high-growth opportunity growth is not high, it may be due to the rapid growth and bring similar "decalcified" type questions, they have less core elements for ability to grow, or have a very low quality of these elements but cannot be sustained, and even the presence of some of the negative issues brought rapid growth. On the other hand, the ability of bidding company after merger integration is poor, it does not have the ability to integrate the target company for high-growth opportunities well, to promote the development of their own. To a certain extent, this research enriches the situation of China’s enterprise M&A theory and enterprise growth theory.This thesis also respectively compared the model I: The long-term market risk impact of target company market-to-book ratios after M&A with model III: The regression results of long-term market risk for bidding company to target stock mispricing after M&A and Model II: The long-term operational risk impact of target company market-to-book ratios after M&A with model IV : The regression results of long-term operational risk for bidding company to target growth opportunities after M&A.We found by decomposition market-to-book ratios, strengthened the variables and model’s ability to explain risks after M&A, and is helpful for deeper analysis. This thesis found market-to-book ratios and dismantling improve the stability of the model from the stability test, we also found that investors of the value of the target company before M&A activity have been systematically overestimate behavior from descriptive statistics of explanatory variables.According to the research conclusion, this thesis puts forward some countermeasures and suggestions. We suggest that decision makers of bidding enterprise should estimates synergies of M&A more rational. Decider can use accounting multiplier method to decompose market-to-book ratios into extract firmspecific error(FSE) before M&A, as a basis of its M&A strategy, reasonable avoid market risk. We suggest that bidding enterprises more focus on the core elements of target enterprise growth ability before M&A, reasonably circumvent the operational risk, and pay attention to the improvement of its integrated ability. We also suggest that investors use firm-specific error(FSE) and long-run value-to-book(LRVTB) factors, to identify the listed company stock pricing errors, analyzing the growth of listed companies, so as to improve the efficiency of investment. We final suggest that policy makers of government use firm-specific error(FSE) and long-run value-tobook(LRVTB) factors, to predict and control the risks of state-owned enterprises, to guide the reform of state-owned enterprise restructuring, mergers and acquisitions and long-term development,to service for the structural reform of the supply front and industry upgrading.