Valuation Adjustment Mechanism And Shareholder Wealth Effect Of Cross-Regional M&As

Based on the valuation adjustment mechanism(VAM),this paper examines the shareholder wealth effect of cross-regional M&As within a country and the role of VAM as a contingent consideration arrangement in emerging markets.This paper mainly tests the market segmentation effect and the information asymmetry effect in the cross-regional M&As.Theoretical analysis shows that market segmentation effect and the information asymmetry effect have two effects on cross-regional M&As.VAM can ease the information asymmetry between M&As transactions,but it can not ease the obstacles of capital flow in the context of market segmentation.Using M&As events from 321 SME board markets in 2010-2014 as a sample,we test the wealth effect of cross-regional M&As.The empirical results show that VAM significantly improves the wealth effect of the acquirer's shareholders.Compared with the same regional M&As,cross-regional M&As creates less value for the acquirer's shareholders.The type of ownership does not affect wealth effect of cross-regional M&As.The use of VAM can significantly improve the wealth effect of cross-regional M&As.Further,we also found that the more serious degree of information asymmetry between the two sides,namely,VAM in the diversified M&As,M&As of small-scale companies and related party M&As,the use of VAM creates higher value for the acquirer's shareholders.In all,the empirical results are in line with the prediction of information asymmetry,indicating that the exchange and sharing of information between firms in the different regions is the key to improve the wealth effect of cross-regional M&As.In addition,the research provides empirical evidence to support the introduction of VAM in mergers and acquisitions in China.Effectively promoting the exchange of information between regions is the key to enhancing the wealth effect across regions.