The Information Implication of Merger and Acquisition Announcements : Evidence from the U.S. And China
This study examines the impact of merger and acquisition (M&A) announcements made by U.S. companies listed on New York Stock Exchange (NYSE) and Chinese companies listed on Shanghai and Shenzhen stock exchanges on acquiring frms' stock returns. The event study methodology is employed to ascertain whether abnormal returns exist surrounding the announcement day (day 0). The study covers a period from August 2006 to February 2008 with a sample size of 164 events. It is found that the announcement effect is not significant over the event period (day -10 to day 10) for the U.S. companies but significant for Chinese companies during the 10-day period before the announcement day. A breakdown by exchanges for Chinese stocks shows that the announcement effect only exist for companies listed on Shenzhen stock exchange over the 10-day event window before the announcement. However, there are instantaneous abnormal returns on a few single days prior to and after the announcement, especially about one week before day 0. A further look at the change of the capital market line indicates the welfare of creditors of the firm may be encroached by shareholders and managers after the announcement in the U.S. but not in China. However, for Chinese firms, M&As may destroy firm value in total. The evidence shows that due to different forms of market efficiencies, investors in the U.S. who trade on the information regarding an acquiring company's impending M&A cannot earn abnormal returns on average, while those in China can profit from it before the information is officially released; however, the incentive effects associated with debt are different in the two countries