The Wealth Effect of Cross-Border Mergers and Acquisitions in the Chinese Financial Sector

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The Wealth Effect of Cross-Border Mergers and Acquisitions in the Chinese Financial Sector Abstract This paper investigates the short-term wealth effects on foreign acquirers and Chinese targets involved in 37 cross-border mergers and acquisitions (M&As) in Chinese financial sector during the period 1990-2005. The intra-industry effects of significant cross-border M&As are then analyzed by examining the wealth effects on the rivals of Chinese target firms. The empirical results show that both experienced foreign bidders and Chinese targets obtain significant positive wealth gains during the event, while inexperienced foreign bidders suffer losses. This paper also demonstrates that foreign bidders with Chinese banking targets …show more content…

Third, the corporate governance structure and shareholder protection of domestic financial institutions may be improved (Rossi & Volpin, 2004). Although China has initiated market deregulation, foreign financial institutions are still facing intensive monitoring from Chinese authorities. Compared to the UK, the US and other developed countries, the degree of openness of Chinese financial market is still low. According to current Chinese law (Appendix I), foreign financial institutions experience difficulty in obtaining a controlling interest of more than 50% or in becoming a majority shareholder in target firms. This situation is similar to most M&A cases in Hong Kong, which are partial mergers or acquisitions (Cheng & Leung, 2004). Moreover, another unique characteristic of Chinese targets is that the majority are unlisted financial institutions. Therefore, it is more feasible for foreign financial institutions to enter the Chinese financial market by merging with or acquiring Chinese financial institutions. Cross-border M&A studies on financial institutions are rare and inconclusive, possibly due to the unavailability of data and to sample differences. There is as yet no paper examining foreign financial institution M&As in one emerging market. This paper

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