The Difference Of Relative Value And A Search Model For Mergers

One of the most well-established stylized facts about merger and acquisition activity is that typical merger involves an high-asset-valuation acquirer purchasing a target with low asset valuations,described as "high buy low".While Rhodes & Robinson(2008)[1] focus on the differences of book-to-market ratio between acquirer and target and point out that the bidders and targets are quite similar in relative value in most transactions,so a better description of M&A is "like buys like".Therefore,from the perspective of synergy effects,this paper try to explores the influence of similar B/M ratios on the possibility of M&A and analyzes the relationship among the assortative matching,realization of synergy and search model for mergers.Taking 316 mergers happened between two listed firms in Chinese market during the period 2000-2016 as sample,with the method of probability selection model to verify whether the differences of B/M ratio is a remarkable factor to influence merger happen.This paper try to analysis the factors that influence the search model for mergers,and to explain the phenomenon of "like buys like" in M&A market.Besides,from the perspective of market valuation and liquidity level,this paper discuss the relationship between the search cost and the B/M spread between acquirer and target.The empirical results show that,from the perspective of enterprise scale,mergers follow the "high buys low " rule in China's M&A market,but the difference between two firms' B/M ratios is cluster in 0,this can be describe as "like buys like" phenomenon.And decreasing the differences of B/M ratios will increases the probability that firms participate in a merger,which for the purpose of obtaining the synergy effects generated from assortative matching.In addition,When state-owned enterprise involved in a merger,it will weaken the similar of B/M ratios on influence of the possibility of a merger,because the mergers driven by government influence are not only to gain synergies.At the same time,when market valuation and liquidity at a high level,search costs are low,more assortative matching in the merger market and "like buys like" are more obvious,.The significance of this study lies in the further exploration of the distribution of relative value difference of enterprises under the law of "high buys low",and give some explains about the phenomenon of "like buys like" in Chinese market.At the same time,based on the analysis of the ways to achieve synergy,this paper makes a study on the probability of M&A and the search conditions of the M&A target.