Research On The Market Reaction Of M&A Valuation Adjustment Mechanism Of Listed Companies

Mergers and Acquisitions(M&A)are important ways for listed companies to conduct denotative expansion or market value management.Due to the existence of information asymmetry and irrational factors,highpremium M&A transactions are of common occurrence.In order to rectify the risks arising from M&A transactions and promote M&A market to develop healthily,the China Securities Regulatory Commission put forward valuation adjustment mechanism from the legal dimension for the first time in 2008.Valuation adjustment mechanism can weaken the information asymmetry between M&A participants.Meanwhile,it could also restrain and encourage the target companies to enhance performance to fulfill the promise.Therefore,valuation adjustment mechanism gradually becomes a common contractual arrangement for M&A transactions of listed companies.Based on the analysis above,the paper takes the valuation adjustment mechanism in M&A transactions as the research object,and discusses the relationship between valuation adjustment mechanism and the stock price reaction of the listed company.In order to further discuss whether the differences in specific terms of valuation adjustment mechanism will affect the market's response,the paper examines the stock price response to the profit growth rate promised by the target company and compensation mode.First,Study from the perspective of short-term market responses and discover:(1)In M&A transactions,the value adjustment mechanism could send positive signals to the market.The acquiring companies obtains a significantly higher cumulative abnormal return when value adjustment mechanism is used.(2)When the target company commits to a higher profit growth rate,the cumulative abnormal return within the window of M&A transaction will also increase significantly.(3)Share compensation could generate a bigger cumulative abnormal return than cash compensation.Second,Study from the perspective of long-term market responses and discover:(1)The value adjustment mechanism has a significant positive effect on the buy-and-hold abnormal return within 12 months after the announcement of M&A transaction.(2)Share compensation could generate a bigger buy-and-hold abnormal return than cash compensation.(3)The company's promised profit growth rate in the transaction is positively correlated with the stock's buy-and-hold abnormal return,but the result is not significant.