IPO Over-financing And Merger & Acquisition

The ChiNext market is an important constituent of the multi-level capital market in China.It has been shouldering the duty of accelerating the transformation of the path of economic development.In addition,it has also carried the responsibility for cultivating and developing strategic emerging industries,as well as implementing the national independent innovation strategy.However,the “Three highs and one abnormal”,i.e.high IPO Over-financing,high P/E ratios,high stock prices and abnormal fluctuations have frequently happened in the market and have aroused wide and great concern: it appears to be hazards to the healthy development of the ChiNext market.In recent years,scholars have focused on IPO Over-financing,a long-term phenomenon unique to the Chinese capital market,and have done many useful research on the relationship between both investment efficiency and executive compensation,and the effectiveness of using IPO Over-financing.However,there are few research focus on the relationship between IPO Over-financing and corporate mergers and acquisitions,although IPO Overfinancing and frequent mergers are supplements to each other on the ChiNext market.At the same time,few domestic research has discussed the market reaction to different payment methods of M&A;moreover,there is a lack of short-term performance research on cash payment in M&A directly related to IPO Over-financing.Whether the abundant liquidity brought by IPO Over-financing will drive corporate M&A? Whether this kind of “burn money type” M&A is recognized by the market,and how its short term performance will be? These are all questions worthy of researching.This paper takes companies listed on the ChiNext market from 2009 to 2017 as research samples,to analyze their M&A activities between year 2010 and 2017.The main findings are stated as follows.Firstly,IPO Over-financing that is characteristic of the Chinese capital market is one of the driving forces for enterprises' M&A,bringing far-reaching impacts on such aspects as acquisition probability,the size of the transaction,transaction frequency,M&A payment method and market reaction.Due to IPO Over-financing,enterprises tend to carry out M&A via cash payment.Heavier IPO Over-financing will increase the chance of M&A and leads to larger transaction size and higher transaction frequency.Secondly,the market reaction to different payment methods in M&A varies: the market reaction on cash payment is significantly smaller than the market reaction to stock payment and mixed payment.Besides,the market has a negative reaction on using IPO Over-financing to carry out M&A activities.The more IPO Over-financing is,the more negative the market reaction will be on cash payment acquisition.Thirdly,further study leads to the conclusion that reputation mechanism of securities company plays an positive role in the process of enterprises using IPO Over-financing.A securities company with higher reputation always restrict the probability and size of M&A using IPO Over-financing.Based on the above conclusions,this paper comes to the following 5 suggestions: Firstly,regulatory authorities should use the market to control and manage excessive capital liquidity at its root,actively broaden the channels of social investment as well as financing and provide guidance on the rational allocation of social resources so that IPO Over-financing will be minimized.Secondly,governmental departments must strengthen the regulation of M&A in the ChiNext market and utilize the using efficiency of money funded by listed companies.Thirdly,for securities companies,IPO pricing and continuous supervision should be done diligently and conscientiously.They should verify the using plan of IPO Over-financing carefully to avoid the misusing of the remaining huge amount of over-financing as it may be generated again after the deregulation of P/E ration in the future.Fourthly,for those ChiNext enterprises that have not fully use their over-financing funds,on the one hand they should make complete plan on the using of over-financing and seize investment opportunities;on the other side they need to strengthen corporate governance to ease the agency problem caused by the excess of money.Last but not least,the vast medium and small investors should reasonably judge the driving factors of M&A in ChiNext companies and pay attention to the payment methods and M&A performance.Acts of deception,where companies with weak endogenous development make unfaithful profits,and perform earnings management through M&A,always call for vigilance.The research innovation and contribution of this paper may lie in the following aspects: Firstly,based on China's national conditions and institutional background,this paper expands the free cash flow hypothesis and the merger driven theory,gives explanation to the cause of merger wave among ChiNext enterprises.Secondly,it tests the actual effect of the current IPO Over-financing using policy to deepen people's recognition of the effect of IPO Over-financing on the company's microscopic behavior,in order to provide useful advices for ChiNext enterprises to improve the efficiency of the use of funds raised,regulatory authorities to improve the supervision of IPO Over-financing,and securities companies to diligently fulfill their obligations.