Performance Impact Of Foreign Mergers And Acquisitions Based On The Corporate Governance Of Listed Companies In China

This paper was inspired by the recent extensive controversy and concerns about the foreign acquisitions which took place in China in the past few years. The main topic of this paper is to look into whether the foreign acquisitions improved the corporate governance and operating performance of their Chinese targeted firms. First, we review the major papers related to our topic, and initiate the research objective and possible innovation. Then we introduce the development and feature of the foreign acquisitions in China, and raised our concerns about some potential problems. After discussing the theoretical possibility and mechanism of improving the corporate governance by foreign acquisition, we investigate its real effects by defining a corporate governance index. The ultimate objective of raising the corporate governance level is to improve the operating performance. Thus, the next step is to analyze the targeted firms' performance after foreign acquisitions, both theoretically and empirically. Finally, tentative advices about how to regulate the foreign acquisitions are presented after introducing the experience of some other countries. Based on the above frame, this paper is consisted of five chapters all together.Chapter 1 is the introduction. At the beginning of this chapter, we clarify the main objective of this research, that is, what impact foreign acquisitions have on the targeted firms' corporate governance and operating performance. Then, we reviewed the related papers, including those about the definition of foreign acquisition and its manifestation in China, acquisition and corporate governance, corporate governance evaluation, acquisition and performance, and the methods of performance study.Chapter 2 is the development, features and problems of foreign acquisitions in China. After dividing the development experience since early 1990s into three stages according to their respective characteristics, we analyze the potential problems of foreign acquisitions at both the macro-economic and corporate level.Chapter 3 is the study of the impact of foreign acquisitions on the Chinese targeted firms' corporate governance. After a discussion of internal and external mechanisms of corporate governance, we conclude that foreign acquisitions might affect the corporate governance through the changes in equity structure and the corporate control market. Then we choose those A-share firms which occurred foreign acquisitions between the year 1999 and 2004 as our sample, construct a G index using Principal Component Analysis, to conduct the empirical analysis. Chapter 4 is the study of the impact of foreign acquisitions on the Chinese targeted firms' operating performance. We first analyze the theoretical possibility of improving the performance through the corporate governance and other ways. Then we use the financial ratio analysis to study the performance change of our sample and compare it with its comparables to test our previous theory.Chapter 5 is the policy implication of the foreign acquisition impact. By drawing on the experience of some developed countries, and taking China's own situation into consideration, we come up with some policy suggestions for the Chinese enterprises and government authorities to deal with the challenges of foreign acquisitions.