Do Chinese acquirers paying premiums in large international acquisitions experience negative market reactions as Western counterparts?
| Pages | 307-317 |
| Published date | 06 August 2018 |
| DOI | https://doi.org/10.1108/JABS-04-2016-0061 |
| Date | 06 August 2018 |
| Author | Chiung-Hui Tseng,Tony Kuo |
| Subject Matter | Strategy,International business |
Do Chinese acquirers paying premiums in
large international acquisitions experience
negative market reactions as
Western counterparts?
Chiung-Hui Tseng and Tony Kuo
Abstract
Purpose –This study draws on behavioralfinance and signaling theory to investigate marketreactions to
Chinese acquirers when they made premium paymentsin large cross-border acquisitions. Paying high
premiumshas been considered an inferior acquisitiondecision that engenders negative marketreactions
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
marketreactions.
Design/methodology/approach –This paperapplies an event study method and testshypotheses 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 acquisitionpremiums and
stock market returns is moderated by whether the transactions are tender offers, in that the positive
relationshipis weaker when acquisitions are tender offers.
Originality/value –Different from previous researchfocusing on Western companies and proposing a
negativelinkage between premiums paid and investor reactionsto the acquisitions, this study sheds light
on Chinese acquirers who paid premiums in large international acquisitions and, based on the logic of
behavioralfinance and signaling theory, positsa positive association in the context of Chineseacquirers.
Keywords Outward foreign direct investment, Market reaction, Acquisition premium
Paper type Research paper
Introduction
Cross-border acquisitions, referring to a corporate action in which one firm buys
ownership stakes in a target firm located abroad so as to assume control of it (Yin and
Shanley, 2008), have been a popular strategy that enables firms to grow and compete
in a rapidly changing international business landscape. Because this practice often
demands a significant, irreversible financial payment to complete the transaction, it has
been considered a risky mode of overseas expansion. Conventionally, firms that are
based in advanced economies are presumed to be more capable of implementing this
strategy than their counterparts from developing nations, in terms of both financial
resources and managerial skills, and previous studies have thus paid most attention to
the buyers, or so-called acquirers, headquartered in developed countries (Krishnan
et al., 2007;Schijven and Hitt, 2012).
Chiung-Hui Tseng is
Associate Professor at the
Institute of International
Business, National Cheng
Kung University, Tainan,
Taiwan. Tony Kuo is based
at the Yuanta Securities,
Taipei, Taiwan.
Received 21 April 2016
Revised 6 December 2016
Accepted 25 February 2017
DOI 10.1108/JABS-04-2016-0061 VOL. 12 NO. 3 2018, pp. 307-317, ©Emerald Publishing Limited, ISSN 1558-7894 jJOURNAL OF ASIA BUSINESS STUDIES jPAGE 307
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