The Role of Cross-Border Mergers and Acquisitions in Foreign Direct Investment: Evidence from the Chinese Stock Market

47 Pages Posted: 4 Dec 2017

See all articles by Okhwa Ahn

Okhwa Ahn

Korea Capital Market Institute (KCMI) - Global Capital Market Studies

Date Written: December 31, 2009

Abstract

In this treatise, we provide empirical evidence based on stock and operating performance measures to show how cross-border mergers and acquisitions (M&As) are different from domestic transactions from the perspective of foreign acquirers. We analyze the shareholder wealth effect from 663 domestic and international M&As announced by Chinese corporations between 1994 and 2006. We have uncovered some differences between national and cross-border M&As. We find that foreign acquirers experience significantly higher stock and operating performance than transactions carried out only by domestic firms. Higher target gains for cross-border transactions are consistent with the acquirer's ability to correctly value or capture synergies in cross-border takeovers. We also examine the source of wealth gains in Chinese targets of foreign acquirers. We find that the exchange rate and taxes are more important in justifying the target premium in foreign takeovers than in domestic takeovers. Taken together, our results suggest that the realization of synergy is the main motive behind foreign takeovers. We also analyze the role of corporate governance in cross-border M&As. Consistent with our hypothesis, the dummy for B shares or H shares is positively related with the takeover premium, indicating that strong corporate governance standards influence the valuation process in transition economies.

Keywords: Cross-border M&As, Wealth Gains, Cumulative Abnormal Return (CAR), Corporate Governance, Transition Economy

JEL Classification: F21, F24, G10, O53

Suggested Citation

An, Yuhua, The Role of Cross-Border Mergers and Acquisitions in Foreign Direct Investment: Evidence from the Chinese Stock Market (December 31, 2009). East Asian Economic Review, Vol. 13, No. 2, pp. 39-84, December 2009, Available at SSRN: https://ssrn.com/abstract=3077747 or http://dx.doi.org/10.2139/ssrn.3077747

Yuhua An (Contact Author)

Korea Capital Market Institute (KCMI) - Global Capital Market Studies ( email )

Korea, Republic of (South Korea)

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