Abstract
Our paper investigates the response of acquiring firms’ stock returns around the announcement date in cross-border mergers and acquisitions (M&A) between listed Chinese acquirers and German targets. We apply an event study methodology to examine the shareholder value effect based on a sample of M&A deals over the most recent period of 2012-2018. We apply a market model event study based on the argumentation of Brown and Warner (1985) and use short-term observation periods according to Andrade, Mitchell, and Stafford (2001) as well as Hackbarth and Morellec (2008). The results indicate that the announcement of M&A involving German targets results in a positive cumulative abnormal return of on average 2.18% for Chinese acquirers’ shareholders in a five-day symmetric event window. Furthermore, we found slight indications of possible information leakage prior to the formal announcement. Although it shows that the size of acquiring firms is not necessarily correlated with the positive abnormal returns in the short run, this study suggests that Chinese acquirers’ shareholders gain higher abnormal returns when the German targets are non-listed companies.
Highlights
Mergers and acquisitions (M&A) is a combination of two firms to generate more value as a whole instead of operating as separate entities (Chakrabarti, 2001)
The results indicate that the announcement of M&A involving German targets results in a positive cumulative abnormal return of on average 2.18% for Chinese acquirers‟ shareholders in a five-day symmetric event window
Do Chinese M&A activities really create shareholder value? This study on short-term stock price performance regarding completed cross-border M&A deals between Chinese acquirers and German targets suggests that investors from listed Chinese acquiring firms benefit from on average 2.18% stock price rise around the M&A announcement
Summary
Mergers and acquisitions (M&A) is a combination of two firms to generate more value as a whole instead of operating as separate entities (Chakrabarti, 2001). The potential influence that the perceived “overpayment” can have on the stock market reaction is not well captured by the existing research This study fills this void by conducting quantitative tests and qualitative analyses based on the most recent deal data, especially for the period after the release of the “Made in China 2025” initiative and the perceived “overpayment” period. This aspect should be considered against the background that in a political as well as social dimension, M&A activities of (governmental-controlled) Chinese companies are viewed with certain skepticism.
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