Do M&A Funds Create Value in Chinese Listed Firms?

Abstract

This paper examines the stock market response to the establishment of M&A funds by Chinese listed firms and the investments made by M&A funds. Our results show that the establishment of M&A funds by listed firms in general do not create value. Even after these M&A funds make investments, there is a dampening effect on the value of listed firms. Particularly, when investor sentiment is higher, the short-run stock returns are lower, but this negative effect diminishes during stronger overall market conditions. Therefore, our empirical evidence suggests that listed firms need to overcome market perception challenges associated with this important type of private equity fund.

Keywords: M&A funds, Stock returns, Stock liquidity, Investor sentiment