Abstract

This paper studies 437 merger and acquisition (M&A) deals initiated by Chinese companies listed on either the Shanghai or Shenzhen Stock Exchanges between 1997 and 2007. By examining the wealth effects and firm performance of Chinese M&A, we attempt to investigate the underlying motives behind Chinese corporate acquisitions. We find that shareholders of the acquiring firms realize significantly positive abnormal returns in the short term around the announcement of the deal, contrary to most findings in the U.S. market. Our results suggest that Chinese acquisitions are mainly driven by synergy motives. Our findings suggest that, in the long term, the operating performance of acquiring firms does not improve after the acquisition, although shareholders who buy and hold the acquiring firm's stock realize positive returns. Furthermore, results of cross-sectional regressions of abnormal returns around the announcement date show that acquisitions by highly profitable firms result in reduced shareholder wealth, while friendly acquisitions and acquisitions of joint-venture targets tend to increase shareholder wealth. We find some evidence that industry relatedness increases shareholder wealth which is consistent with prior U. S. studies. However, methods of payment, acquirers with State ownership and cross-border acquisitions have insignificant effects. While Chinese M&A show positive gains for the acquirers, the evidence on the determinants of these gains is mixed.