An Empirical Study On M & A Performance Of Chinese Listed Companies

Given the development progresses and patterns of enterprises around the world, it can be concluded that there are two main ways to develop a company. One is that through endogenous development and by increasing investment continuously to improve its production capacity and thus achieve the development. The other is that through external expansion and merge and acquisition(M&A) to enlarge the company’s size in a short period and thus to achieve its development rapidly.The United States harbors the first merge and acquisition. In its history, there are altogether five M&A booms, which later referred as “the five waves of M&A” by scholars. All the five waves are inevitable; for they all closely related to a series of certain factors, including the birth and development of M&A tide, economy of scale, regroup of assets, re-allocation of resources, the deepening globalization drive, the increased competitiveness and the advancement of science and technology.The history of merge and acquisition of a Chinese listed company can be traced back to 1993, the M&A case of Bao Yan. More than twenty years have passed, but the case still draws spotlight. At the same time, the M&A market in China finally has gradually taken its own shape. Especially after the reform of non-tradable shares, China’s security market has entered into an era of entire circulation which fuels the development of M&A of listed companies in China and into a boom. In 2014, the China Securities Regulatory Commission(CSRC) unveiled the new Measures for Administration of Material Assets Reorganization of Listed Companies. It is foreseeable that the M&A market of listed companies in China will be furthered developed. With the implement of Shanghai-Hong Kong Stock Connect program, the orderly forward stock registration system, the advancement of composite-ownership system reform as well as the accelerating globalization of China’s security market, M&A has been thought as a major means for listed companies in China to carry out strategies and allocate resources. There is no doubt that the merge and acquisition will become a new normal in the security market.The question is that, does the merge and acquisition been helpful to listed companies in terms of achieving strategic goals, lifting profitability or increasing economic returns?This paper will centers on answering these questions. In this paper, M&A cases of the year of 2010 as well as theories are quoted to better illustrate these questions. The author’s purpose is by analyzing the relation between equity attributes and M&A performance, which based on diversified equity attributes of listed companies in China, to enlighten both parties in the M&A case and to the development M&A market.The paper can be divided into three sections:In the first section, the background and significances of performing the research about M&A performance of China’s listed companies are presented. It introduces research methods, thoughts and possible innovations of this research. Furthermore, it summarizes some theories, both home and abroad, on drivers for M&A, relation among total performance and equity attributes and M&A performance. Also, based on the features of security market in China, the research method that applied in this paper are introduced, which lays the foundation for verifying these theories.In the second section, the paper select the appropriate research targets from listed companies that announced M&A actions in the year of 2010 and performing researches on their M&A performance from two sides.In the beginning, the paper uses accounting synthetic evaluation system to analyze the whole M&A performance of listed companies. It also uses SPSS 22.0 to acquire data of 10 indexes in 4 dimensions, namely the profitability, solvency, operational capability and development ability, to perform factor analysis on listed companies’ financial data in five years(one year before M&A and three years after the M&A).Then, approach to scores of M&A performance of sample companies during the said period and perform analysis on the difference, in order to capture the tendency of changing before and after the M&A. And by doing this, it can be concluded that whether the M&A is beneficial or not to a listed company’s performance and its potential to develop.At last, in this section, it will analyze equity attributes’ influences on M&A performance of listed companies, which are illustrated through several facets, including the nature of controlling shareholders, shareholding proportion of the largest shareholder, equity balance level, managerial stockholding level, total company equity and stock mobility. The paper performed a comprehensive analysis by combining traditional theories and practical researches.In the third section, the paper puts forward policies and suggestions in the perspective of equity attributes and on the basis of above-mentioned empirical research.The possible innovations of this paper:(1) Methods used to select samples are more suitable to the actual situation of China’s security market and current system. A. The author noticed that in most M&A cases, during the day(as an appendix of resolution of shareholder meeting of listed companies and shall be signed before the shareholder meeting being held to discuss on the M&A matter) when the equity transfer agreement being signed and the day(the transitional period) when all actual underlying assets being registered the change with the Industrial and Commercial Bureau, all the generated net profits go to the listed company. Meanwhile, the author gives considerations to the different batches of the equity transfer process in the transition period and approvals issued by relative authorities, such as the Securities Regulatory Commission, the Ministry of Commerce and the States-owned Assets Supervision and Administration Commission, as well the difference in the transfer process, which will eventually result to a big difference in the transition period of M&A. For the above-mentioned reasons, set a listed company that completes the M&A action as an example, it’s possible to find that it has two different status in the two parts of the year. For this reason, its comparability and validity are questionable for an empirical research.Methods of selecting applied in this paper follow to the actual operating procedure of M&A in the recent years. Set listed companies which have made a first declaration of their M&A preplan in 2010 for the first time as samples, in order to avoid the low comparability that results from slow operation of M&A approval and changes in the market, which makes the data of the same year more comparable and accurate. B. When selecting samples, the author held different opinions on listed companies that conducted multiple M&A compared with other documents. It is the author’s opinion that although multiple M&A have been conducted, the time effectiveness and comparability data will not be affected in the year of M&A as well as the following years, because these multiple M&A serve as a whole to influence financial data for years coming and still represents the M&A conducted in 2010. And because the multiple M&A happened in the same year which makes it can be viewed as the same M&A, therefore the samples of this type are reserved in this paper. C. Compared with other research, this paper took behaviors of target samples into considerations. The author held the opinion that M&A actions in this period can not be neglected, for the reason that a new M&A has an extremely strong impact on collected data. For this reason, the author has removed these data which differ from the former researches.(2) Samples being selected have more time effectiveness.In consideration of the financial data required in this research cover the numbers of the following three years after M&A of the listed company, and the annual report and audition’s report of 2014 have not been published at the time when this paper was finished, the author set the year of 2010 as the reference year. Meanwhile, in the year of 2010, many M&A actions were conducted, both the number of M&A and trading amount of it set a record high. Plus, with the steady development of capitalist market and the changing M&A mode, it is more persuasive to analyze M&A market through M&A conducted in 2010 by empirical research.(3) It broadens the research perspective.In the former researches, authors are more focus on analyzing three factors, namely the nature of controlling shareholders, shareholding proportion of the largest shareholder managerial stockholding level, and their influences on the M&A performance of listed companies. However, this paper, based on all these former researches, further broadens its research perspective by adding three more, which are the amount of equity, equity balance and equity mobility. Besides, from the six perspectives of equity attributes, the paper analyzes their respective influences on listed companies’ M&A performance. To conclude, this paper enriches the research perspectives on equity research and helps the research results move into a more comprehensive, more scientific and more systematic direction.Through a series of empirical research, conclusions have been achieved and there are more:1. In general, the M&A performance of listed company show an upward trend after experienced a decline in the first. To be more specific, the decline happened in the first and second year after the M&A and in the third year, the performance will experience a largely increase, which form a V type format of change.Conclusions upon the traditional vision1. The state-owned listed company has a bad performance in terms of M&A performance in compare with others, and the non-stated owned companies enjoy a absolute edge. 2. Against the system background in China, interest synergy effects of major shareholders are not obvious. Listed companies that enjoy a high shareholding proportion of the largest shareholder are in disadvantage compared with others in terms of M&A performance. 3. Listed companies which enjoy a strong equity balance have a better M&A performance than those enjoy a relatively weak one in three years after the M&A. However, the opposite result is achieved when it comes to the development potential.Conclusions upon the new vision4. In terms of M&A performance, listed companies that have managerial stockholding does not experience a marked change. While in terms of development potential, those companies enjoy a certain advantage. 5. In terms of scores of M&A performance, there is no drastic difference between companies that have a larger total amount of equity and that have a small one. However, when it comes to development potential after the M&A, the former one enjoys a clear edge. 6. Mobility of shares has a positive effect on the M&A performance which can be proved by listed companies that enjoy a stronger mobility have better performances in both M&A performance and development potential.In conclusion, from the perspective of equity attributes and based on the M&A performance of listed companies in China, this paper has established a relatively systematic and complete research frame by following a certain logic thinking, which is marked by the beginning of factors that affected M&A performance, scores of M&A performance after the M&A, influences of equity attributes on M&A performance and at last the improvement of M&A performance of listed companies.