Mandatory Bids in China: You Can Lead a Horse to Water, But You Can't Make Him Drink

41 Pages Posted: 15 Nov 2018 Last revised: 25 Jan 2019

See all articles by Wei Zhang

Wei Zhang

Singapore Management University

Weiran Lin

Shenzhen Stock Exchange

Bin Zeng

Shenzhen Stock Exchange

Wenxiu Zhang

China University of Political Science and Law

Date Written: November 2, 2018

Abstract

This paper studies mandatory bids in China against an institutional backdrop of restrictive IPO requisites. We find that virtually no shares held by external shareholders are tendered in mandatory bids for all the remaining shares. As for factors contributing to the failure of mandatory bids in China, we find that mandatory bidders press down their bid prices, and probably manipulate target stock prices. We also document that the market responds favorably to the announcement of mandatory bids. Our preliminary evidence shows that such rewarding responses are, at least in part, attributable to the value created by new controllers after mandatory bids via improved operational performance of target companies. Our research is among the earliest empirical works on the mandatory bid rule in a particular jurisdiction, and provides evidence for the first time to the theoretical prediction that mandatory bids induce efficient transfers of corporate control even if noncontrolling shareholders retain their shares.

Keywords: tender offer, mandatory bids, transfer of corporate control, mergers and acquisitions, IPO

JEL Classification: K22, G34

Suggested Citation

Zhang, Wei and Lin, Weiran and Zeng, Bin and Zhang, Wenxiu, Mandatory Bids in China: You Can Lead a Horse to Water, But You Can't Make Him Drink (November 2, 2018). Available at SSRN: https://ssrn.com/abstract=3277222 or http://dx.doi.org/10.2139/ssrn.3277222

Wei Zhang (Contact Author)

Singapore Management University ( email )

School of Law
55 Armenian Street
Singapore, 179943
Singapore

Weiran Lin

Shenzhen Stock Exchange ( email )

2012 Shennan Blvd., Futian District
Shenzhen
China

Bin Zeng

Shenzhen Stock Exchange ( email )

2012 Shennan Blvd., Futian District
Shenzhen
China

Wenxiu Zhang

China University of Political Science and Law ( email )

25 Xitucheng Rd
Haidian District
Beijing
China

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