Information asymmetry, cross-listing, and post-M&A performance

Abstract

This study examines how target opaqueness and the acquirer’s cross-listing in a developed financial market impact the alignment between the stock market’s initial reaction to an M&A deal announcement and the acquirer’s post-M&A performance by affecting the level of information asymmetry between acquirers’ managers and stock market investors. We hypothesize that target opaqueness weakens, whereas the acquirer’s cross-listing enhances, the alignment between the initial stock market reaction and the acquirer’s post-acquisition performance. Additionally, the weakening effect of target opaqueness is smaller when the acquirer is cross-listed in a financially more developed market. From a sample of mergers and acquisitions (M&A) deals made by Chinese acquirers, we find that the alignment between the initial stock market reaction and acquirer’s post-acquisition performance is weakened when the targets are private, high-tech, or foreign, while being strengthened when the acquirers are cross-listed in Hong Kong stock exchanges. Further, the weakening effects of private, high-tech, or foreign targets are smaller when the acquirers are cross-listed. This study contributes to the M&A literature by examining factors that moderate the alignment between stock market’s ex-ante valuation of M&A deals and the ex-post performance of those deals.