Value Creation Through Outbound Mergers And Acquisitions: The Short-Term And Long-Term Financial Performance Of Chinese Outbound Mergers And Acquisitions

Given the recent increase in Chinese outward foreign direct investment as well as its changing qualitative character, i.e. from industries such as mining or manufacturing towards higher value added industries, the question that remains is to what extent Chinese companies nowadays are expected to perform well and actually do excel during a complex business operation like an outbound merger and acquisition(M&A).This study is sought to examine the short-term value creation, i.e. the expected financial performance, during the stock market announcement as well as the long-term value creation, i.e. the actual achieved financial performance, one year after the announcement. A t-test reveals that short-term value creation is positive indicating that investors are optimistic about the outcome of Chinese outbound mergers and acquisitions. However, a t-test examining longterm value creation shows a negative performance of Chinese outbound M&As. This indicates a disparity between expected and achieved value creation.Based on the strategic type organizational factors enterprise growth model, key factors and their influence on the long-term value creation are being examined using a multiple regression analysis. The final regression model reveals that the relative size of a deal and the ownership status have a significant influence on the long-term value creation of an outbound merger and acquisition with larger deals and deals executed by state-owned enterprises creating significantly larger shareholder value. Neither the strategic type, cultural distance, previous experience, nor payment method have a significant influence on value creation.Due to the disparity between expected and achieved value creation, the necessity of postmerger integration and its application in a cross-border setting is elaborated. The impact of strategic type as well as the impact of other influence factors on value creation are discussed in further details. Lastly, limitations of the current study such as the application of shareholder value maximization as the key indicator of value creation are debated and suggestions for further research including the utilization of a more holistic measurement of value creation is provided.