Market Mispricing Timing and Post-acquisition Performance: Evidence from Chinese A-share Firms

Abstract

This study examines the impact of market mispricing timing on the short-term and long-term performance of acquiring firms in the context of China's capital market. Using a comprehensive dataset of A-share listed companies engaged in mergers and acquisitions (M&A) between 2007 and 2021, we investigate whether M&A activities conducted during periods of market overvaluation lead to enhanced short-term performance while failing to generate sustained long-term benefits. Our findings reveal that acquisitions executed during market overvaluation exhibit significantly improved short-term stock market performance, reflecting the alignment of merger announcements with optimistic investor sentiment. However, such positive effects on short-term performance do not extend to long-term outcomes. The study underscores the critical influence of market timing on the immediate post-acquisition performance of acquiring firms but highlights its limited impact on long-term financial and market performance. These insights contribute to a better understanding of M&A behavior within the Chinese capital market, demonstrating that while capitalizing on market mispricing can yield short-term advantages, sustainable long-term gains hinge on other factors beyond market timing.