Selection and institutional shareholder activism in Chinese acquisitions

Abstract

Purpose

This paper aims to investigate the role that institutional shareholders play in acquisition decisions using micro data in the Chinese stock market during 2003‐2008.

Design/methodology/approach

Acquisition decision is the selection and coordination process of shareholders as strategic alliances, which is determined by corporate acquisition ability, composition of institutional shareholders and concentration of tradable share (TS) in China. The paper uses the Heckman selection model to surmount the selection biases in acquisition decision.

Findings

The paper finds that institutional shareholders, including qualified foreign institutional investors (QFII), social security funds (SSF), security firms (SF) and security investment funds (SIF), as well as TS concentration, affect acquisition probability rather than annual acquisition scale. SSF, SIF and TS concentration can increase acquisition probability while QFII decreases it.

Research limitations/implications

This paper suggests a strategic alliance model in which institutional shareholders choose whether to collaborate with controlling shareholders and management. However, detailed information of the selection and coordination process is unavailable in the authors' data. Future research need provide more evidence of this postulate.

Originality/value

The paper contributes to the published literature in three ways. First, it offers a model to understand the selection and coordination process of acquisition decision. Second, it investigates whether institutional shareholders could effectively monitor annual acquisition scale. Third, it identifies the Heckman selection problem that institutional shareholders could affect PLCs' acquisition decision on whether to acquire rather than how much to acquire.

Citation

Peng, F., Kang, L. and Jiang, J. (2013), "Selection and institutional shareholder activism in Chinese acquisitions", Management Decision, Vol. 51 No. 1, pp. 141-162. https://doi.org/10.1108/00251741311291355