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Do Mergers and Acquisitions Create Value:Evidence from Chinese Listed Companies

Zhang Xin (China Securities Regulatory Commission)  
This paper studies whether MA creates value in China.Using the event study method and accounting indicators,it investigates 1216 cases covering all major MA events related to listed companies from 1993 to 2002.The stock prices and financial performances of targeted companies are found to have both improved significantly after MA deals;the reverse impact is seen on purchasing companies;and the net impact on purchasing and targeted companies as a whole is not statically significant.Therefore MA creates value to Chinese securities markets since most listed companies are targeted companies,but it is doubtufl that MA creates net value for the society as whole.Synergy effect explains why MA is popular in China,and hubris hypothesis and agency motives explain why purchasing companies lose value.We also propose two new theories—“value redistribution hypothesis” and “internal decision mechanism hypothesis”.We show that they explain best the empirical results in the Chinese market.
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