Announcement Effect Study of Cross-Border Acquisition by Chinese Public Companies

Announcement Effect Study of Cross-Border Acquisition by Chinese Public Companies

BY

CUI BOFENG, Derek

(12252026)

Hong Kong Baptist University

Hong Kong

2016

Abstract:

        This article aims to do the empirical study of the announcement effect of the cross-border acquisition by Chinese companies listed in China, Hong Kong, and the US to acquire the US listed companies. After calculating the cumulative abnormal return, and analyzing the average abnormal return on the announcement date, we conclude that the cross-border acquisition would not create value for the shareholders of the Chinese bidder companies during the period of 40 trading days prior to the announcement day to 20 trading days after the announcement day.

Introduction:

Since the 2008 financial crisis, due to the less weakly suffered than the western developed countries (Chen and Young, 2009), the emerging countries, such as China and India, become more active and aggressive in the cross-border business area, in particular, the cross-border acquisition (Sun et al., 2012). As the second largest economy, China performs even more actively than India. Besides, China is undertaking the market-oriented reform, aiming to improve the international competences and creative vitality of the Chinese companies, and economy development of the country in the new phase. Also, from the study of Boateng, Qian and Tianle (2008), Chinese government has switched the instruction direction from encouraging more foreign companies to invest in China to encourage more Chinese companies to invest in overseas. The study by Shimizu et al. (2004) also point out that cross-border acquisition could facilitate the freedom of economy, which is consistent with the above statement. Moreover, Johanson and Vahlne (2009) analyzes that the huge amount of debts of some foreign companies also welcome the Chinese companies to acquire. Also, as the largest economy in the world, the US companies have become the most popular investment target in this case. Hence, this article is focusing on the cross-border acquisition of Chinese listed companies to the US listed companies.

        However, there have been a lot of researches focusing on the cross-border acquisitions. Most of them analyze the motivation behind the cross-border acquisitions. They obtain the idea from the bidding company resources perspectives and from abnormal return created for the shareholders of bidding companies. And from all those study, the cross-border would create the slightly positive return for the bidder shareholders or definitely negative return for the bidder shareholders. However, there is no empirical study about the announcement effect and benefits to the bidder shareholders of Chinese bidding companies to acquire the US companies done before. Hence, this project is aiming to measure the announcement effect and abnormal return for the shareholders of Chinese listed bidding companies which acquire the US listed companies. And our hypothesis is that the abnormal return on during the observation period should be significantly negative for the bidding Chinese companies listed in the three markets.