Do Market Value Market-Based Governance? Case of Cross-Border Acquisitions by Chinese Firms

37 Pages Posted: 1 Sep 2012 Last revised: 25 Jan 2013

See all articles by Kotaro Inoue

Kotaro Inoue

School fo Engineering, Tokyo Institute of Technology

Taotao Chen

Tsinghua University

Yujie Zhu

Tsinghua University

Cong Yan

Tsinghua University - School of Economics & Management

Shuang Song

Tsinghua University

Date Written: January 17, 2013

Abstract

This study empirically tests shareholder wealth effects at the announcement of acquisitions of foreign firms by Chinese firms. Listed firms in China are unique in that the ratio of shareholding by the state or state-owned enterprises is high in many firms, and their shares listed sorely in Chinese domestic stock markets are restricted for foreign investors to trade. We find that, although abnormal return of acquiring firm is not significant for the entire sample, it is positive and significant for sub-sample that acquiring firms are listed on either the U.S. or Hong Kong stock exchange. In addition, abnormal return is significantly lower in cases that major shareholders of acquiring firms are state or enterprises owned by state. These results are consistent with the argument that market-based governance is more effective than large-shareholder-based governance.

Keywords: Cross-border acquisitions, Governance, Bidder return, China

JEL Classification: G32, G32, G38

Suggested Citation

Inoue, Kotaro and Chen, Taotao and Zhu, Yujie and Yan, Cong and Song, Shuang, Do Market Value Market-Based Governance? Case of Cross-Border Acquisitions by Chinese Firms (January 17, 2013). Midwest Finance Association 2013 Annual Meeting Paper. Available at SSRN: https://ssrn.com/abstract=2139179 or http://dx.doi.org/10.2139/ssrn.2139179

Kotaro Inoue (Contact Author)

School fo Engineering, Tokyo Institute of Technology ( email )

2-12-1 Ookayama, Muguro-ku
Tokyo, 152-8552
Japan

Taotao Chen

Tsinghua University ( email )

Beijing, 100084
China

Yujie Zhu

Tsinghua University ( email )

Beijing, 100084
China

Cong Yan

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

Shuang Song

Tsinghua University ( email )

School of Economics and Management
Tsinghua Zijing Building No.16, 0216B
Beijing, Beijing 100084
China

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