The Impact Of Institutional Investors On Mergers And Acquisitions In China

Under the "extraordinary promotion of institutional investors" policy of the government, domestic institutional investors have experienced explosive growth in the last decade and they are playing an increasingly important role on Chinese stock market. According to Wind database, by the end of 2014 the proportion of institutional investors'stockholdings account for 49.2% of the A share circulation market. The development of institutional investors promotes their incentives of participating in corporate governance of listed companies. This paper provides empirical evidence that Chinese institutional investors participate actively in the corporate governance of listed companies from the perspective of Mergers and Acquisitions (M & As).Based 4588 M&As over 15 years from 2000 to 2014, this paper examines the impact of institutional investors on M & As via pooled Tobit and Probit model. My results show that:(1) Total institutional ownership of acquiring firms has a positive relationship with the deal size of M & As; (2) The ownership stake of the largest fund management firm has a negative impact on the deal size of M&As; (3) Acquiring firms with greater concentration of QFII ownership have a higher probability to engage in cross-border M & As. My findings indicate that institutional investors are actively involved in firms' M & A transactions. Therefore, the authorities should stick to the policy of developing institutional investors to perfect Chinese capital market, with particular emphasis on the improvement of QFII regulation. In addition, I compare the acquiring firms' CARs before and after the first M & A announcements in 1882 M & A events from year 2000 to 2014, and find that insider trading generally exists in M & A deals, calling for reinforcing the regulation of insider trading by the authority. My empirical results also suggest that institutional investors can effectively alleviate insider trading before the first M & A announcements.