Is Targets’ Business Experience Valuable to Acquirers? Evidence from the U.S. Grant of PNTR Status to China

61 Pages Posted: 5 Jan 2022

See all articles by Sheng‐Syan Chen

Sheng‐Syan Chen

National Chengchi University

Shu-Cing Peng

National Central University - Department of Finance

Date Written: January 3, 2022

Abstract

We exploit the U.S. grant of Permanent Normal Trade Relations (PNTR) status to China as a quasi-policy shock to corporate demand for targets with China-related business experience, and investigate how such a shock affects U.S. acquirers’ target selection and performance. U.S. firms are more likely to acquire targets with Chinese experience following PNTR. These acquirers realize better announcement returns and post-acquisition operating performance, enjoy higher synergy gains, and are more likely to avoid large losses than other acquirers after PNTR. Acquisitions of targets with Chinese experience benefit U.S. acquirers by lowering operating expenses, purchasing more inputs from China, selling more outputs to China, and establishing more social networks in China post-PNTR. Overall, this paper reveals that targets with complementary knowledge in local businesses improve decision making for acquirers entering the foreign market via minimizing information gap.

Keywords: Target selection, Acquirers’ performance, Permanent normal trade relations, China-related business experience, Information gap

JEL Classification: G14, G32, G34, O24

Suggested Citation

Chen, Sheng-Syan and Peng, Shucing, Is Targets’ Business Experience Valuable to Acquirers? Evidence from the U.S. Grant of PNTR Status to China (January 3, 2022). Available at SSRN: https://ssrn.com/abstract=3999058 or http://dx.doi.org/10.2139/ssrn.3999058

Sheng-Syan Chen

National Chengchi University

No. 64, Sec. 2, ZhiNan Rd., Wenshan District
Taipei 116, 116
Taiwan

Shucing Peng (Contact Author)

National Central University - Department of Finance ( email )

No. 300, Jung-da Rd.
Jung-Li
Taoyuan
Taiwan

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