Preprint Essay Version 2 This version is not peer-reviewed

Stock Mispricing Differentiate the Motives for Mergers and Acquisitions: Based on the Post-acquisition Market Evidence from China

Version 1 : Received: 23 February 2020 / Approved: 24 February 2020 / Online: 24 February 2020 (14:06:03 CET)
Version 2 : Received: 1 March 2020 / Approved: 3 March 2020 / Online: 3 March 2020 (11:02:16 CET)

How to cite: Xiao, M.; Peng, Z. Stock Mispricing Differentiate the Motives for Mergers and Acquisitions: Based on the Post-acquisition Market Evidence from China. Preprints 2020, 2020020355 (doi: 10.20944/preprints202002.0355.v2). Xiao, M.; Peng, Z. Stock Mispricing Differentiate the Motives for Mergers and Acquisitions: Based on the Post-acquisition Market Evidence from China. Preprints 2020, 2020020355 (doi: 10.20944/preprints202002.0355.v2).

Abstract

This study uses a recently developed theory and technique to examine post-acquisition evidence as to the motives for mergers and acquisitions(M&As), and decomposed the M/B ratio into three components: firm-specific error, time-series sector error, and long-run value-to-book. We make a multidimensional grouping according to the frequency of M&As , payment method, proportion of shares acquired, M/B ratio before the merger and total assets of the acquirers before the merge. The results confirm that M&As involve multiple motives, such as market timing, industry and economic shocks, agency and hubris. Using a sample of 2,035 M&As in China, we find that 59% are related to market timing, 68% are related to agency and hubris, 21% are related to industry and economic shocks, 51% are related to multiple motives. Our empirical research finds that the main motives for M&As of listed companies in China are value-decreasing, which have negative impact on the acquirers‘ sustainable development.

Subject Areas

mispricing; motives for mergers and acquisitions; M/B ratio decompositon; LSTM networks

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