The purpose of this paper is to study merger momentum and its driving factors in China by sampling 376 listed bidders from 2008 to 2013.
The empirical model captures the dependency of market reaction on recent merger and stock market states. The independent variables are designed from two dimensions, i.e. at the level of market-wide as an integral and bidder-specific as individuals. Furthermore, both the market and bidding firms contain merger momentum and market momentum, respectively.
The empirical results show that there is merger momentum in the market. Particularly, merger momentum is significant both in short run and long run for the mergers with cash payment, which supports the synergy effect. It also implicates the mergers with stock driven by investor sentiment. Besides, investors’ over-optimism is significant in the bull markets while managerial hubris is found in the bear markets.
The driving factors for merger momentum in China are complex. Three impacts with different effects interact with one another. They are investor sentiment and managerial hubris with negative effects resulting in reversal abnormal return in the long run, and synergies with positive shocks resulting in no reverse at all. The limitation of the paper is insufficient analysis of the mergers financed by stocks, which will be the focus for future study.
The conclusions of the study help to intensify the understanding of the immature and unnormalized capital market in China. The empirical analyses give some inspiration and suggestions to three parties in the market, i.e. investors, bidding firms and regulators, respectively.
There are three contributions. The first one is to provide a novel model to identify how these different effects work on the merger momentum. The second one is the measurement of investor sentiment from different perspectives. The last but most important one is the new findings with novel explanations, which proves that the impacts on merger momentum are complex.
The authors acknowledge very insightful comments from anonymous referees. The authors also thank National Natural Science Foundation of China for financial support (Grant No. 71263013).
Fu, L. and Wang, Q. (2019), "Driving factors of merger momentum in China: empirical evidence from listed companies", China Finance Review International, Vol. 9 No. 2, pp. 235-253. https://doi.org/10.1108/CFRI-06-2017-0153Download as .RIS
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