Do Chinese acquirers paying premiums in large international acquisitions experience negative market reactions as Western counterparts?

Research output: Contribution to journalArticle

Abstract

Purpose: This study draws on behavioral finance and signaling theory to investigate market reactions to Chinese acquirers when they made premium payments in large cross-border acquisitions. Paying high premiums has been considered an inferior acquisition decision that engenders negative market reactions in previous studies examining Western acquirers. Moving beyond previous work, this paper aims to propose that the premiums paid by Chinese firms in large international acquisitions will yield positive market reactions. Design/methodology/approach: This paper applies an event study method and tests hypotheses on a sample that comprises large international acquisitions made by Chinese acquirers between 2007 and 2012. Findings: The acquisition premium paid by a Chinese acquirer in a large cross-border acquisition positively affects its stock market return to the acquisition announcement. That is, investors rely on the managers’ judgment about the synergistic and value-creating potential of the acquisitions, as inferred from the premiums paid. Moreover, it was found that the relationship between acquisition premiums and stock market returns is moderated by whether the transactions are tender offers, in that the positive relationship is weaker when acquisitions are tender offers. Originality/value: Different from previous research focusing on Western companies and proposing a negative linkage between premiums paid and investor reactions to the acquisitions, this study sheds light on Chinese acquirers who paid premiums in large international acquisitions and, based on the logic of behavioral finance and signaling theory, posits a positive association in the context of Chinese acquirers.

Original languageEnglish
Pages (from-to)307-317
Number of pages11
JournalJournal of Asia Business Studies
Volume12
Issue number3
DOIs
Publication statusPublished - 2018 Aug 6

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Premium
Market reaction
International acquisitions
Investors
Signaling theory
Stock market returns
Tender offers
Cross-border acquisitions
Behavioral finance
Design methodology
Linkage
Announcement
Logic
Hypothesis test
Event study
Managers
Chinese firms
Payment

All Science Journal Classification (ASJC) codes

  • Business and International Management
  • Economics, Econometrics and Finance(all)
  • Strategy and Management

Cite this

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title = "Do Chinese acquirers paying premiums in large international acquisitions experience negative market reactions as Western counterparts?",
abstract = "Purpose: This study draws on behavioral finance and signaling theory to investigate market reactions to Chinese acquirers when they made premium payments in large cross-border acquisitions. Paying high premiums has been considered an inferior acquisition decision that engenders negative market reactions in previous studies examining Western acquirers. Moving beyond previous work, this paper aims to propose that the premiums paid by Chinese firms in large international acquisitions will yield positive market reactions. Design/methodology/approach: This paper applies an event study method and tests hypotheses on a sample that comprises large international acquisitions made by Chinese acquirers between 2007 and 2012. Findings: The acquisition premium paid by a Chinese acquirer in a large cross-border acquisition positively affects its stock market return to the acquisition announcement. That is, investors rely on the managers’ judgment about the synergistic and value-creating potential of the acquisitions, as inferred from the premiums paid. Moreover, it was found that the relationship between acquisition premiums and stock market returns is moderated by whether the transactions are tender offers, in that the positive relationship is weaker when acquisitions are tender offers. Originality/value: Different from previous research focusing on Western companies and proposing a negative linkage between premiums paid and investor reactions to the acquisitions, this study sheds light on Chinese acquirers who paid premiums in large international acquisitions and, based on the logic of behavioral finance and signaling theory, posits a positive association in the context of Chinese acquirers.",
author = "Chiung-Hui Tseng and Tony Kuo",
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journal = "Journal of Asia Business Studies",
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AB - Purpose: This study draws on behavioral finance and signaling theory to investigate market reactions to Chinese acquirers when they made premium payments in large cross-border acquisitions. Paying high premiums has been considered an inferior acquisition decision that engenders negative market reactions in previous studies examining Western acquirers. Moving beyond previous work, this paper aims to propose that the premiums paid by Chinese firms in large international acquisitions will yield positive market reactions. Design/methodology/approach: This paper applies an event study method and tests hypotheses on a sample that comprises large international acquisitions made by Chinese acquirers between 2007 and 2012. Findings: The acquisition premium paid by a Chinese acquirer in a large cross-border acquisition positively affects its stock market return to the acquisition announcement. That is, investors rely on the managers’ judgment about the synergistic and value-creating potential of the acquisitions, as inferred from the premiums paid. Moreover, it was found that the relationship between acquisition premiums and stock market returns is moderated by whether the transactions are tender offers, in that the positive relationship is weaker when acquisitions are tender offers. Originality/value: Different from previous research focusing on Western companies and proposing a negative linkage between premiums paid and investor reactions to the acquisitions, this study sheds light on Chinese acquirers who paid premiums in large international acquisitions and, based on the logic of behavioral finance and signaling theory, posits a positive association in the context of Chinese acquirers.

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