Acquisition Premium and Acquirer Abnormal Returns to Acquisition Announcement: Evidence from China Large Outbound Investment

Abstract

This study examines the relationship between premiums paid and acquirers’ stock market returns to the announcement of a cross-border acquisition Drawing on a sample of 37 large Chinese acquirers we found that the amount of premium is positively associated with the acquirers’ stock immediate returns This result deviates from the findings of prior studies which predict negative stock returns to the premiums announcement Building on behavioral finance theory we argue that Chinese investors tend to be overly-confident in the performance of cross-border acquisitions and they view the premium paid as a positive sign to the prospect of the acquisition Moreover we also found that the relationship between the premium paid and the stock returns is weakened when the deal is a tender offer or a full ownership acquisition In sum we suggest that premiums paid will benefit the acquiring firm’s immediate stock returns when investors perceived that the acquiring firm is able and about to take a chance on an industrial turning point Despite that a tender offer will significantly weaken the positive effect of premiums paid

Date of Award	2014 Jun 19
Original language	English
Supervisor	Chiung-Hui Tseng (Supervisor)