A Study On M&A Long-term Performance After Share Splitting Period

The share-splitting structure reform laid the foundation of market-oriented M&A. Could listed companies in mergers and acquisitions create value after the reform? What are the factors that affect the M&A market performance and why? All these issues are worth studying at this stage.This paper discusses the affection which the M&A transaction characteristics and equity ownership structure on the long-term market performance of the acquired company. First, the research and theory related to acquisition were reviewed, and then,according to the characteristics of different periods of China’s capital market, especially the share-splitting period and the period after that, the theoretical analysis was done and the research hypothesis were established about the market performance and influencing factors of the M&A transaction. Then,946samples from2006-2007China’s A-share market listed company M&A events were selected. First, the1-36months BHAR of these samples after the merger were calculated using CSMAR and Wind Information; and the samples were classified from transaction characteristics and the structure of the acquirer’s equity ownership.M&A transaction characteristics include:equity nature, belong to the jurisdiction of associated attributes, types of mergers and acquisitions, financing models and methods of payment; equity ownership structure including:background of the ultimate controller, the shareholding ratio of institutional investors and the largest shareholder. Samples were grouped according to these classifications, the differences of the M&A performance were compared. A multiple regression was done while the explanatory variables are M&A transaction characteristics and equity ownership structure, the Dependent variable is BHAR.The theoretical analysis and hypotheses were verified according to these empirical tests. A conclusion is draw that the M&A long-term performance of the selected sample is negative, the shareholder’s wealth suffered a loss. But the positive effects of the equity division reform can’t be denied, this result may due to the sample being on alternating stages of bull and bear markets, serious over-payment and overvalued asset in the acquisition process caused the damage; the mergers and acquisitions features of the acquisition do not have strong impact on long-term performance, equity ownership structure can explain better on long-term performance.The shareholding ratio of the largest shareholder is positively related to M&A long-term performance, reflecting a positive effects of share-splitting reform, and to the background of ultimately controller, non-state-owned acquisitions perform better, the shareholding ratio of institutional investors have a negative correlation with M&A long-term performance, which does not meet the hypotheses according to the share-splitting reform, the stock market and the economic environment may led to this result. Finally, some future research of the M&A market in China were suggested.