The Effect of Mergers and Tender Offers on Stockholder Returns PDF Download

Author: Fenying Xie
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ISBN: 9781374711211
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Languages : en
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This dissertation, "The Effect of Mergers and Tender Offers on Stockholder Returns: the Case of Hong Kong" by Fenying, Xie, 謝奮穎, was obtained from The University of Hong Kong (Pokfulam, Hong Kong) and is being sold pursuant to Creative Commons: Attribution 3.0 Hong Kong License. The content of this dissertation has not been altered in any way. We have altered the formatting in order to facilitate the ease of printing and reading of the dissertation. All rights not granted by the above license are retained by the author. Abstract: Abstract of thesis entitled The Effect of Mergers and Tender Offers on Stockholder Returns: The Case of Hong Kong submitted by XIE Fenying for the degree of Master of Philosophy at the University of Hong Kong in February 2002 Despite the constant growth of corporate takeovers in Hong Kong during the past few years, little research has been carried out on mergers and acquisitions (M&As) in the region. This study explores M&As in the Hong Kong market with particular emphasis on the examination of abnormal returns around merger and tender offer announcements from 1986 to 1998. In addition to qualitative analysis, quantitative analysis with event study and cross-sectional regression techniques is included. Compared with takeovers in other developed equity markets such as the U.S., mergers and tender offers in Hong Kong exhibit some peculiar differences. The market resistance of takeovers is strong and hostile bids are rare. Ownership of most companies is highly concentrated, often within a family group, and it is closely tied with corporate control power. Capital gains in Hong Kong are not taxed. The regulatory framework for takeovers is also different, e.g. the takeover trigger point is relatively high with 35 percent in the examination period. Under this specific market background, it is found that stockholders of target firms benefit from mergers and tender offers, while stockholders of bidding firms lose. Using market model estimation, on announcement day, merger and tender offer targets both earn statistically significant positive abnormal returns of more than 3%; tender offer bidders show a significant negative abnormal return of -2.18%, whilst merger bidders obtain a positive but insignificant abnormal return of 2.15%. The cumulative average abnormal return over the entire event window, i.e. twenty days before to twenty days after the announcement date, is 8.58% for merger targets (Z statistic = 1.57), 13.75% (Z statistic = 4.97) for tender offer targets, 12.95% for total targets (Z statistic = 5.19), -5.78% (Z statistic = -1.01) for merger bidders, -8.12% (Z statistic = -2.20) for tender offer bidders, and -6.84% (Z statistic = -2.22) for total bidders. The results of market-adjusted-return models are similar. Cross-sectional analysis of the effects of various factors on cumulative abnormal returns over day -1 and day 0 is conducted for targets and bidders respectively. The results indicate that the abnormal performances of targets and bidders are independent of firm size and the mode of acquisition (i.e. merger or tender offer). The cumulative abnormal returns of targets display a strong negative association with pure cash payment and a strong positive relation with their bidders' pretakeover toehold investment. However, there is no evidence that method of financing and toehold explain variation in abnormal performance of bidding firms. Vertical acquisitions are positively related to the two-day cumulative abnormal returns at a less significant level for both target and bidding firms. DOI: 10.5353/th_b2975020 Subjects: Tender offers (Securities) - China - Hong Kong Consolidation and merger of corporations - China - Hong Kong Rate of return - China - Hong Kong Stockholders - China - Hong Kong