What drives mergers & acquisitions waves of listed companies of the ChiNext market? IPO over-financing or stock overvaluation
A wave of mergers and acquisitions (M&A) has been consistently rising among the China’s ChiNext companies over the past years, which has drawn great attention across academia and industry. Based on the neoclassical theory and the behavioral theory, this paper explores the driving factors of M&am...
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| Format: | Article |
| Language: | English |
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Vilnius Gediminas Technical University
2018-08-01
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| Series: | Technological and Economic Development of Economy |
| Subjects: | |
| Online Access: | https://journals.vgtu.lt/index.php/TEDE/article/view/3762 |
| _version_ | 1818878855318863872 |
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| author | Xin Xu Yong-jin Liang Shun-lin Song |
| author_facet | Xin Xu Yong-jin Liang Shun-lin Song |
| author_sort | Xin Xu |
| collection | DOAJ |
| description | A wave of mergers and acquisitions (M&A) has been consistently rising among the China’s ChiNext companies over the past years, which has drawn great attention across academia and industry. Based on the neoclassical theory and the behavioral theory, this paper explores the driving factors of M&A among Chinese ChiNext companies. Two hypotheses were put forward: one based on IPO over-financing and the other based on the market value overvaluation. IPO over-financing is specific to the Chinese capital market while market value overestimation is driven by the continuous upsurge in the ChiNext Market. Our study found that both factors account for enterprises’ mergers and acquisitions. They have far-reaching influences on such fields as acquisition probability, the size of the transaction, transaction frequency, M&A payment method and market reaction. Due to IPO over-financing, enterprises tend to carry out M&A via cash payment or cash and stock mixed payment method. Heavier IPO over-financing will increase the chance of M&A and leads to larger transaction size and higher transaction frequency. Market value overvaluation will lead to more uses of stock or cash and stock mixed payment on M&A transactions. When the company’s stock is overvalued, the company will use the overvalued equity to acquire other companies. Greater overvaluation of the market value also increases the chance of M&A and leads to a larger transaction size and higher frequency of M&A. In China, IPO over-financing rather than market value over-valuation, is the major driving factor for China’s corporate mergers and acquisitions. Further study found that the market reaction to different payment methods in mergers and acquisitions varies: it has the minimum reaction on cash payment, a larger reaction on stock payment and the greatest reaction on mixed payment. Also, the mixed payment method has the largest cumulative abnormal returns. This is different from the empirical findings in the United States and Europe. This paper provides a theoretical basis and empirical evidence for an in-depth understanding of the wave of mergers and acquisitions of Chinese ChiNext companies, and provides a basis for decision-making and policy recommendations for the government regulators and investors. |
| first_indexed | 2024-12-19T14:20:48Z |
| format | Article |
| id | doaj.art-71a8fb497dda434eb22140969d3e0ca7 |
| institution | Directory Open Access Journal |
| issn | 2029-4913 2029-4921 |
| language | English |
| last_indexed | 2024-12-19T14:20:48Z |
| publishDate | 2018-08-01 |
| publisher | Vilnius Gediminas Technical University |
| record_format | Article |
| series | Technological and Economic Development of Economy |
| spelling | doaj.art-71a8fb497dda434eb22140969d3e0ca72022-12-21T20:17:47ZengVilnius Gediminas Technical UniversityTechnological and Economic Development of Economy2029-49132029-49212018-08-0124410.3846/tede.2018.3762What drives mergers & acquisitions waves of listed companies of the ChiNext market? IPO over-financing or stock overvaluationXin Xu0Yong-jin Liang1Shun-lin Song2Zhongnan University of Economics and Law, School of Accounting, Wuhan, ChinaZhongnan University of Economics and Law, School of Accounting, Wuhan, ChinaCentral University of Finance and Economics, School of Accountancy, Beijing, ChinaA wave of mergers and acquisitions (M&A) has been consistently rising among the China’s ChiNext companies over the past years, which has drawn great attention across academia and industry. Based on the neoclassical theory and the behavioral theory, this paper explores the driving factors of M&A among Chinese ChiNext companies. Two hypotheses were put forward: one based on IPO over-financing and the other based on the market value overvaluation. IPO over-financing is specific to the Chinese capital market while market value overestimation is driven by the continuous upsurge in the ChiNext Market. Our study found that both factors account for enterprises’ mergers and acquisitions. They have far-reaching influences on such fields as acquisition probability, the size of the transaction, transaction frequency, M&A payment method and market reaction. Due to IPO over-financing, enterprises tend to carry out M&A via cash payment or cash and stock mixed payment method. Heavier IPO over-financing will increase the chance of M&A and leads to larger transaction size and higher transaction frequency. Market value overvaluation will lead to more uses of stock or cash and stock mixed payment on M&A transactions. When the company’s stock is overvalued, the company will use the overvalued equity to acquire other companies. Greater overvaluation of the market value also increases the chance of M&A and leads to a larger transaction size and higher frequency of M&A. In China, IPO over-financing rather than market value over-valuation, is the major driving factor for China’s corporate mergers and acquisitions. Further study found that the market reaction to different payment methods in mergers and acquisitions varies: it has the minimum reaction on cash payment, a larger reaction on stock payment and the greatest reaction on mixed payment. Also, the mixed payment method has the largest cumulative abnormal returns. This is different from the empirical findings in the United States and Europe. This paper provides a theoretical basis and empirical evidence for an in-depth understanding of the wave of mergers and acquisitions of Chinese ChiNext companies, and provides a basis for decision-making and policy recommendations for the government regulators and investors.https://journals.vgtu.lt/index.php/TEDE/article/view/3762The ChiNext MarketM&AIPO over-financingstock overvaluationmethod of payment |
| spellingShingle | Xin Xu Yong-jin Liang Shun-lin Song What drives mergers & acquisitions waves of listed companies of the ChiNext market? IPO over-financing or stock overvaluation Technological and Economic Development of Economy The ChiNext Market M&A IPO over-financing stock overvaluation method of payment |
| title | What drives mergers & acquisitions waves of listed companies of the ChiNext market? IPO over-financing or stock overvaluation |
| title_full | What drives mergers & acquisitions waves of listed companies of the ChiNext market? IPO over-financing or stock overvaluation |
| title_fullStr | What drives mergers & acquisitions waves of listed companies of the ChiNext market? IPO over-financing or stock overvaluation |
| title_full_unstemmed | What drives mergers & acquisitions waves of listed companies of the ChiNext market? IPO over-financing or stock overvaluation |
| title_short | What drives mergers & acquisitions waves of listed companies of the ChiNext market? IPO over-financing or stock overvaluation |
| title_sort | what drives mergers acquisitions waves of listed companies of the chinext market ipo over financing or stock overvaluation |
| topic | The ChiNext Market M&A IPO over-financing stock overvaluation method of payment |
| url | https://journals.vgtu.lt/index.php/TEDE/article/view/3762 |
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