An Empirical Analysis of the Effects of Horizontal Mergers and Acquisitions on the Performance of Chinese Listed Companies - The Case of the 2008 Global Financial Crisis

Abstract

(ProQuest: ... denotes formulae omitted.)1. IntroductionThe names of the top ten mergers and acquisitions (M & A) companies in China in any year are announced in January of the following year. The assessments of the mergers and acquisition companies to select the top ten is done by the All-China Federation of Industry & Commerce, the global Merger and Acquisition (M & A) Research Center and China M & A network. There are a variety of acquisitions types. According to the statistics database of CVSource, there were 2656 cases of Chinese mergers and acquisitions in 2010. In August of 2011, Google announced the purchase of Motorola with 12.5 billion US dollar. M & A is an important means to expand the scale of operation, reduce competition and enter new areas for companies around the word.M & A refers to the situation where a company takes control of other companies by property rights exchange to increase its competitive capability. It can be divided into mergers and acquisitions. M & A is a complex economic phenomenon. It is a product of the economy development. It is also the most influential corporate behavior in a company's business activities. The phenomena of M & A began in the early stage of the Western industrial economy. Since the 19th century, the world has experienced six M & A waves. Currently, as a result of economic globalization, M & A occurs more frequently in China. There are different types of M & A, namely: horizontal M & A, vertical M & A and mixed M & A (Becher, 2002; Kruse & Park, 2007; Chen, 2011; Li & Zhang, 2012). Currently, almost all of the M & A that occur around the word can be classified into these three categories or types. Different types of M & A result from different motivations. There are mainly two sources of motivations for M & A in China, namely: government promoted M & A and expanding the scale of operation promoted by companies.The sign of the recent global financial crisis began to be felt 2007. After the US Subprime mortgage crisis in 2006, investors began to lose faith in value of mortgage backed securities, which causes liquidity crisis in US. This crisis became out of control with the bankruptcy of Lehman Brothers in September 2009. After that, the global economic was in recession. During the 2008 financial crisis, companies yielded to be bankrupt. This situation led to some specific occurrences of M & A.The purpose of this paper is to analyze the performance of horizontal M & A in the 2008 financial crisis environment. It uses discriminant analysis to build a discriminant function. The function can be used to forecast the possibility of performance improvement of horizontal M & A. Section 2 describes some of the theories of mergers and acquisitions. The paper makes use of these theories in achieving its objectives. Section 3 presents the procedure for selecting samples and financial indicators. The paper will use 24 samples and 9 financial indicators for modelling and another 14 samples for testing. Section 4 presents the basic principles of the multivariate discriminant model and independent samples t-test. Section 5 describes the results of the empirical analysis. The conclusions drawn from the research are presented in section 6.2. Overview Of M & A Theory2.1.Horizontal M & AHorizontal M & A is the mergers and acquisitions between two or more companies that produce and sell the same or similar products, such as the case of Geely purchasing Volvo and Lenovo buying IBM Thinkpad. This type of mergers and acquisitions can help to strengthen the competitiveness of enterprises, reduce competition in the market, improve the industry structure, and expand the scale of operation. However, it destroys free competition and forms a high degree of monopoly. Due to the support of the government, horizontal mergers and acquisitions have developed very quickly in China. …