A Research On The Anchoring Effect Of Investors In M&A Events

With the rapid development of Chinese enterprises and the deepening of the degree of internationalization,China's m&a market has developed rapidly.The number of m&a reached the peak in 2016 and the transaction scale exceeded 1.89 trillion yuan in 2017,which has become the second largest m&a market in the world.From the perspective of transaction types,the m&a market in China is still dominated by domestic m&a.Therefore,the research on domestic m&a has been a hot topic among domestic economists.At present,the stock market's reaction to the merger and acquisition announcement of listed companies has been widely studied.Most existing studies assume that investors rationally process the information released by the merger announcement and incorporate the information into the stock price.However,more and more literatures have questioned the assumption that the stock price reflects the information of m&a announcement in time.Therefore,this paper tries to relax the assumption that investors are rational people from the perspective of behavioral finance and study the behavioral deviation of investors when they face the announcement of merger and acquisition.Modern psychology shows that there are eight main manifestations of human irrationality: cognitive bias,representational heuristic,overconfidence,overreaction and underreaction,loss aversion,framing effect,anchoring effect and confirmation bias.The anchoring effect of Tversky and Kahneman(1974)shows that when people make quantitative estimation of an event,they will take some specific values as the starting value,and the starting value restricts the estimation value like an anchor.According to the first implication of anchoring,individuals usually rely on prominent,even seemingly unrelated,reference points to form beliefs or methods of anchoring(Tversky and Kahneman,1974).Empirical evidence suggests that the 52-week high is a valuable price threshold for investors,which may affect their perception of the potential new value of the acquirer.Then,according to the second implication of the anchoring phenomenon,when the information uncertainty is higher and the m&a target information is less,the anchor value will have a greater impact on the numerical estimation(Mussweiler and Strack,2000).Existing studies have investigated the influence of psychological factors such as overconfidence,cognitive bias and loss aversion on investors' response to m&a announcements,but few studies have analyzed the large sample of investors' anchoring effect in m&a announcements.In view of this,3548 m&a data of Shanghai and shenzhen a-share listed companies from 2008 to 2017 were studied,and the anchoring effect was found: when the acquirer's stock price before the merger announcement of listed companies was lower than(close to)the 52-week stock price high,the acquirer would get A higher(lower)cumulative abnormal return in the announcement period.Firstly,this paper introduces the background,significance,content and methods of the research,as well as the innovations and shortcomings,and explains the source of the topic.Secondly,the literature on m&a,investor reaction and anchoring effect at home and abroad was reviewed to obtain the research hypothesis.Then,the anchoring effect is empirically analyzed,the factors affecting the anchoring effect are studied,and the anchoring hypothesis is tested.Finally,the paper draws a conclusion and gives policy Suggestions and main prospects.This paper draws the following conclusions: first,investors have anchoring effect in mergers and acquisitions of Shanghai and shenzhen a-share listed companies,which cannot be explained by valuation level and disposal effect.Second,when the information uncertainty of the acquirer(weekly volatility of stock price,the number of analysts following the acquirer,the relative size of m&a,non-cash m&a and unlisted targets of m&a)is larger(smaller),the anchoring effect is stronger(weaker).Third,when the acquirer's investor maturity(individual investor equity level)is lower(higher),the anchoring effect is stronger(weaker).Fourth,the anchoring effect of investors is a short-term phenomenon,which will be corrected in the long term.Fifth,the robustness test shows that the acquirer's 52-week stock price low,26-week stock price high and 26-week stock price low also have anchoring effect.From the perspective of behavior,this paper finds the anchoring effect of investors in mergers and acquisitions of Shanghai and shenzhen a-share listed companies and analyzes the factors that influence the size of the anchoring effect,which has important guiding significance and practical value.The conclusion provides new evidence for the irrational behavior of Chinese stock investors and provides a new basis for the acquirer to make a decision.