The performance of bidding companies in merger and acquisition deals: An empirical study of domestic acquisitions in Hong Kong and Mainland China

Abstract

Several interdisciplinary studies based on 2007–2008 global financial crisis to measure the causes of crisis, for e.g. firm value, stock market efficiency, corporate governance and macroeconomic performance, and relate all sources of crisis to prior studies. This paper examined the post financial crisis impact the short-term market responses of Hong Kong domestic acquisitions by separating target companies into two samples: Hong Kong targets and Mainland China targets from period of 2012–2016. We have used asset pricing models to estimate the market reaction to the acquisition announcement. We have also analysed the impact of several bid and firm characteristics on bidders’ short-term operating performances. Our findings suggest that: (i) acquisition events in both target markets, bidders earn significant positive abnormal returns but market responses of Mainland China target acquirers are much better. There is an inverse relationship between bidders’ post-acquisition abnormal returns and the level of competition in their targets’ market; (ii) companies bidding for Hong Kong targets obtain higher abnormal returns with cash-financing acquisitions, large relative size targets, single acquisitions, related acquisitions, small market value, more free cash flows, low leverage and high profitability; (iii) firms acquiring Mainland China targets benefit more from stock payment takeover events, large relative size target, multiple acquisitions, related acquisitions, large market value, less free cash flows, high leverage and high profitability.