Shareholders’ indifference… short-term market reaction to firms’ first and subsequent acquisitions: evidence from China

Figures & data

Table 1. Definitions of the key variables.

Variable name	Definition
CAR td	Cumulative abnormal return estimated over an event window [–1;t] with t varying from 1 to 30 days
Acquirer size	Natural logarithm of acquirer’s total assets
Operating profit margin	Acquirer’s operating profit margin (normalised)
Intangible assets	Share of intangible assets in total assets of acquirer
Cash reserves	Ratio of cash and cash equivalents to contemporaneous total assets
Tangible investments	Capital expenditures scaled by contemporaneous value of acquirer’s total assets
Indebtedness	Ratio of total interest bearing debt to contemporaneous total assets
Deal size	Natural logarithm of deal value
Share acquired	Ownership share acquired
Friendly	Binary variable encoding acquirer’s attitude (friendly = 1)
Technology	Binary variable encoding target industry. The variable equals 1 if acquiree operates in high-technology industry
Target GOE	Binary variable equal to 1 if acquiree is a government-owned entity
Target private	Binary variable equal to 1 if acquiree is a private entity
Target JV	Binary variable equal to 1 if acquiree is a joint venture
R&D takeover	Binary variable equal to 1 if the declared purpose of the transaction is to overtake acquiree’s technology
Acquirer age	Time since acquirer’s incorporation
Majority acquisition	Binary variable equal to 1 if more than 50% ownership stake is acquired
First acquisition	Binary variable equal to 1 if a given transaction is acquirer’s first acquisition
First domestic acquisition	Binary variable equal to 1 if a given transaction is acquirer’s first domestic acquisition
First foreign acquisition	Binary variable equal to 1 if a given transaction is acquirer’s first foreign acquisition
Serial acquisition	Binary variable equal to 1 if a given transaction is acquirer’s fourth/fifth/nth acquisition (regardless of whether it is foreign or domestic)
Prior acquisition domestic	Binary variable equal to 1 if a given transaction was preceded with a prior domestic acquisition by the same acquirer
Prior acquisition foreign	Binary variable equal to 1 if a given transaction was preceded with a prior cross-border acquisition by the same acquirer
Number of prior Trx	Number of acquisitions finalised by a given acquirer before a given transaction
Started with foreign acquisition	Binary variable equal to 1 if acquirer started inorganic growth with a cross-border acquisition (the first acquisition was foreign)
Started with domestic acquisition	Binary variable equal to 1 if acquirer started inorganic growth with a domestic acquisition
Time since first acquisition	Time elapsed since acquirer’s first acquisition
Time since previous acquisition	Time elapsed since acquirer’s previous acquisition
Horizontal	Binary variable equal to 1 if acquirer and acquiree operate in the same industry (matched by GIC codes)
Conglomerate	Binary variable equal to 1 if acquirer and acquiree operate in different industries
Experience	Binary variable equal to 1 if acquirer has acquisition experience (regardless of whether it is foreign or domestic) at the moment of transaction finalisation
GDP growth	GDP growth rate in target’s country of domicile

Source: own elaboration.

Table 2. Descriptive statistics.

Variable	Mean	Std.Dev.	Min	Max
Deal size (USD million)	74.813	323.872	1	8824.297
Share acquired	60.203	20.866	10	100
Acquirer age	15.557	6.342	0	38.533
GDP growth	7.701	2.343	–5.281	14.526
Number of prior Trx	.893	1.411	0	12
Time since first acquisition	3.801	3.642	0	22.319
Time since previous acquisition	2.218	2.736	0	19.376
CAR 1d	.003	.046	–.131	.159
CAR 3d	.004	.06	–.177	.201
CAR 7d	.005	.077	–.216	.264
CAR 30d	.007	.145	–.341	.464
Tangible investments	.052	.048	0	.23
Intangible assets	.763	.184	.168	.998
Cash reserves	.166	.126	0	.62
Indebtedness	.231	.167	0	.663
Operating profit margin (pp.)	7.841	23.493	–162.491	51.585

Source: own elaboration.

Table 3. Baseline regression models: market reaction to firms’ first acquisitions (regardless of whether the first acquisition is foreign or domestic).

Explained variable	CAR 1d	CAR 3d	CAR 7d	CAR 30d
	(1)	(2)	(3)	(4)
Deal size	0.001	0.001	–0.000	–0.001
	(1.157)	(0.719)	(–0.163)	(–0.658)
Share acquired	–0.000	–0.000	–0.000	0.000
	(–0.520)	(–0.309)	(–0.370)	(0.032)
Friendly	–0.002	0.002	–0.002	–0.017
	(–0.380)	(0.334)	(–0.313)	(–1.044)
Technology	–0.000	0.000	0.001	0.011
	(–0.012)	(0.128)	(0.195)	(1.142)
Target GOE	–0.059*	–0.039	–0.095*	–0.166
	(–2.228)	(–1.130)	(–2.131)	(–1.940)
Target private	–0.004*	–0.004	–0.003	–0.002
	(–2.103)	(–1.612)	(–0.916)	(–0.323)
Target JV	0.001	0.005	0.004	0.029
	(0.193)	(0.961)	(0.564)	(1.838)
R&D takeover	0.004	–0.010	–0.015	–0.054
	(0.496)	(–0.843)	(–1.009)	(–1.744)
Acquirer age	–0.000*	–0.001**	–0.001**	–0.001*
	(–2.129)	(–2.738)	(–3.270)	(–2.007)
Majority acquisition	0.008*	0.009	0.009	–0.004
	(2.479)	(1.947)	(1.555)	(–0.295)
First acquisition	–0.002	–0.001	0.005	0.001
	(–0.847)	(–0.585)	(1.551)	(0.078)
Industry fixed effects	Yes	Yes	Yes	Yes
Year fixed effects	Yes	Yes	Yes	Yes
F	1.671***	1.452***	1.502***	2.043***
r^2	0.067	0.059	0.061	0.105
N	2650	2647	2642	1952

The table presents cross-sectional regression results with industry and year dummies (not reported). t-values are reported beneath each respective regression coefficient. Heteroscedasticity-robust standard errors are not reported. Statistical significance at 1%, 5% and 10% levels are indicated with ***, * and *, respectively. Coefficients for control variables and intercept are not reported for the sake of brevity.

Source: own elaboration.

Figure 1. Frequency distributions of cumulative abnormal returns contingent on whether acquisition is the first on record for a given company.

The charts represent frequency distributions of CAR td estimated on the even window of [–1;t] days where t varies from 1 to 30 days. Univariate t-test and Wilcoxon rank-sum (Mann–Whitney) test results for respective CARs are reported in Table 5.

Source: own elaboration.

Table 4. Market reaction upon completion of the firms’ first and subsequent foreign/domestic acquisitions.

Explained variable	CAR 1d	CAR 3d	CAR 7d	CAR 30d
	(1)	(2)	(3)	(4)
Deal size	0.001	0.001	–0.000	–0.001
	(1.164)	(0.743)	(–0.151)	(–0.641)
Share acquired	–0.000	–0.000	–0.000	0.000
	(–0.513)	(–0.288)	(–0.359)	(0.087)
Friendly	–0.002	0.002	–0.002	–0.018
	(–0.392)	(0.308)	(–0.328)	(–1.103)
Technology	–0.000	0.000	0.001	0.010
	(–0.030)	(0.102)	(0.176)	(1.111)
Target GOE	–0.060*	–0.039	–0.095*	–0.167
	(–2.231)	(–1.132)	(–2.133)	(–1.949)
Target private	–0.004*	–0.004	–0.003	–0.002
	(–2.112)	(–1.633)	(–0.928)	(–0.329)
Target JV	0.001	0.005	0.004	0.029
	(0.181)	(0.954)	(0.556)	(1.842)
R&D takeover	0.004	–0.010	–0.015	–0.056
	(0.487)	(–0.854)	(–1.016)	(–1.800)
Acquirer age	–0.000*	–0.001**	–0.001**	–0.001*
	(–2.120)	(–2.734)	(–3.262)	(–2.056)
Majority acquisition	0.008*	0.008	0.009	–0.004
	(2.465)	(1.914)	(1.538)	(–0.331)
Serial acquisition	–0.001	–0.001	–0.001	–0.004
	(–0.229)	(–0.157)	(–0.166)	(–0.348)
First domestic acquisition	–0.002	–0.001	0.005	0.002
	(–0.748)	(–0.394)	(1.328)	(0.192)
First foreign acquisition	–0.006	–0.012	–0.003	–0.065*
	(–0.742)	(–1.240)	(–0.230)	(–2.108)
Industry fixed effects	Yes	Yes	Yes	Yes
Year fixed effects	Yes	Yes	Yes	Yes
F	1.643***	1.437***	1.478***	2.052***
r^2	0.067	0.059	0.061	0.107

The table presents cross-sectional regression results with industry and year dummies (not reported). t-values are reported beneath each respective regression coefficient. Heteroscedasticity-robust standard errors are not reported. Statistical significance at 1%, 5% and 10% levels are indicated with ***, * and *, respectively. Coefficients for control variables and intercept are not reported for the sake of brevity.

Source: own elaboration.

Table 5. Univariate tests for the difference in distributions of CARs [–1;t] for subsamples of first and subsequent acquisitions for a given acquirer.

Two-sample t-test
	Mean 1	Mean 2		t-value	p-value
CAR 1d	.003	.003		–.1	.933
CAR 3d	.004	.004		.1	.924
CAR 7d	.002	.007		–2.2	.028**
CAR 30d	.003	.01		–1.2	.239
Two-sample Wilcoxon rank-sum (Mann–Whitney) test
	First acquisition	Subsequent acquisitions	Adjusted variance	z-value	p-value
CAR 1d	1724	1389	6.214e + 08	.112	.9106
CAR 3d	1722	1389	6.196e + 08	.361	.7185
CAR 7d	1720	1384	6.159e + 08	–2.246	.0247**
CAR 30d	1278	1009	2.459e + 08	–.778	.4368

Note: Statistical significance at 5% level is indicated with **.

Source: own elaboration.

Table 6. Market reaction following deal completion contingent upon acquirers’ prior acquisition experience.

Explained variable	CAR 1d	CAR 3d	CAR 7d	CAR 30d
	(1)	(2)	(3)	(4)
Deal size	0.001	0.001	–0.000	–0.001
	(1.116)	(0.683)	(–0.192)	(–0.659)
Share acquired	–0.000	–0.000	–0.000	0.000
	(–0.608)	(–0.383)	(–0.430)	(0.022)
Friendly	–0.002	0.002	–0.002	–0.017
	(–0.347)	(0.362)	(–0.296)	(–1.042)
Technology	–0.000	0.000	0.001	0.011
	(–0.062)	(0.083)	(0.166)	(1.157)
Target GOE	–0.060*	–0.040	–0.096*	–0.168*
	(–2.259)	(–1.154)	(–2.154)	(–1.968)
Target private	–0.004*	–0.004	–0.003	–0.002
	(–2.077)	(–1.593)	(–0.880)	(–0.282)
Target JV	0.000	0.005	0.003	0.027
	(0.042)	(0.835)	(0.454)	(1.748)
R&D takeover	0.004	–0.010	–0.016	–0.055
	(0.464)	(–0.871)	(–1.027)	(–1.776)
Acquirer age	–0.000*	–0.001**	–0.001**	–0.001*
	(–1.993)	(–2.621)	(–3.179)	(–1.981)
Majority acquisition	0.009*	0.009*	0.009	–0.003
	(2.562)	(2.016)	(1.619)	(–0.276)
Number of prior Trx	–0.003*	–0.003*	–0.003	–0.004
	(–2.522)	(–2.102)	(–1.746)	(–0.910)
Prior acquisition domestic	0.006*	0.006	0.001	0.007
	(2.392)	(1.898)	(0.159)	(0.721)
Prior acquisition foreign	0.002	0.003	–0.008	–0.032
	(0.351)	(0.338)	(–0.699)	(–1.192)
Industry fixed effects	Yes	Yes	Yes	Yes
Year fixed effects	Yes	Yes	Yes	Yes
F	1.704***	1.468***	1.509***	2.035***
r^2	0.069	0.060	0.062	0.107

The table presents cross-sectional regression results with industry and year dummies (not reported). t-values are reported beneath each respective regression coefficient. Heteroscedasticity-robust standard errors are not reported. Statistical significance at 1%, 5% and 10% levels are indicated with ***, * and *, respectively. Coefficients for control variables and intercept are not reported for the sake of brevity.

Source: own elaboration.

Figure 2. Mean (subplot A) and median (subplot B) CARs for the first/second/third/fourth/fifth acquisitions for a given acquirer.

The charts represent mean (subplot A) and median (subplot B) CARs td estimated on the even window of [–1;t] days where t varies from 1 to 30 days. Univariate tests for differences in mean and median CARs are reported in Table 7.

Source: own elaboration.

Table 7. Univariate tests for the difference in mean CARs [–1;t] for subsamples of fist/second/third/fourth/fifth acquisitions for a given acquirer.

Pairwise comparisons of means
CAR 1d	Contrast	t	p > t	CAR 3d	Contrast	t	p > t
Acquisition number in a sequence
2_vs_1	.0007738	0.38	0.995	2_vs_1	.0002175	0.08	1.000
3_vs_1	.0035479	1.27	0.710	3_vs_1	.0042451	1.17	0.767
4_vs_1	.000938	0.25	0.999	4_vs_1	.0057991	1.19	0.758
5_vs_1	–.0011309	–0.22	1.000	5_vs_1	.0015491	0.23	0.999
3_vs_2	.002774	0.90	0.896	3_vs_2	.0040275	1.01	0.851
4_vs_2	.0001642	0.04	1.000	4_vs_2	.0055816	1.08	0.816
5_vs_2	–.0019047	–0.35	0.997	5_vs_2	.0013316	0.19	1.000
4_vs_3	–.0026098	–0.59	0.977	4_vs_3	.0015541	0.27	0.999
5_vs_3	–.0046787	–0.82	0.924	5_vs_3	–.0026959	–0.36	0.996
5_vs_4	–.0020689	–0.33	0.997	5_vs_4	–.00425	–0.53	0.985
CAR 7d	Contrast	t	p > t	CAR 30d	Contrast	t	p > t
2_vs_1	–.0060634	–1.80	0.373	2_vs_1	–.0028637	–0.38	0.996
3_vs_1	.0005326	0.11	1.000	3_vs_1	–.0037189	–0.37	0.996
4_vs_1	–.0011176	–0.18	1.000	4_vs_1	–.0072212	–0.53	0.985
5_vs_1	–.012462	–1.44	0.602	5_vs_1	–.0358499	–1.80	0.371
3_vs_2	.0065959	1.29	0.697	3_vs_2	–.0008552	–0.08	1.000
4_vs_2	.0049457	0.75	0.946	4_vs_2	–.0043575	–0.30	0.998
5_vs_2	–.0063986	–0.72	0.953	5_vs_2	–.0329862	–1.61	0.490
4_vs_3	–.0016502	–0.22	0.999	4_vs_3	–.0035023	–0.22	1.000
5_vs_3	–.0129945	–1.37	0.646	5_vs_3	–.032131	–1.49	0.570
5_vs_4	–.0113444	–1.09	0.810	5_vs_4	–.0286287	–1.22	0.740

Source: own elaboration.

Figure 3. Kernel density estimation plots of cumulative abnormal acquirer returns following the first foreign and first domestic acquisition.

The charts represent kernel density estimate plots of CAR td bootstrapped on the even window of [–1;t] days where t varies from 1 to 30 days.

Source: own elaboration.

Table 8. Market reaction following firms’ first foreign/domestic acquisitions.

Explained variable	CAR 1d	CAR 3d	CAR 7d	CAR 30d
	(1)	(2)	(3)	(4)
Started with foreign acquisition	0.005	–0.002	–0.014	–0.001
	(0.467)	(–0.166)	(–0.728)	(–0.011)
Started with domestic acquisition	0.005	0.010	0.017	0.014
	(0.688)	(1.178)	(1.514)	(0.560)
Time since first acquisition	0.001	0.000	0.001	–0.002
	(1.099)	(0.238)	(0.496)	(–0.509)
Time since previous acquisition	–0.002	–0.001	–0.002	0.003
	(–1.746)	(–0.807)	(–0.924)	(0.697)
Serial acquisition*Time since first acquisition	–0.001	–0.001	–0.001	0.000
	(–1.244)	(–0.525)	(–0.660)	(0.002)
Industry fixed effects	Yes	Yes	Yes	Yes
Year fixed effects	Yes	Yes	Yes	Yes
F	1.372***	1.191***	1.153***	1.658***
r^2	0.122	0.108	0.105	0.185
N	1144	1143	1140	832

t-values are reported beneath each respective regression coefficient. Heteroscedasticity-robust standard errors are not reported. Statistical significance at 1%, 5% and 10% levels are indicated with ***, * and *, respectively. For the sake of brevity, the regression coefficients for control variables and intercept are not reported.

Source: own elaboration.

Figure 4. Geographical distribution of cross-border acquisitions completed by listed Chinese acquirers during 1996–2020.

Source: own elaboration.

Table 9. Market reaction to horizontal and conglomerate acquisitions depending on acquirers’ prior acquisition experience.

Explained variable	CAR 1d	CAR 3d	CAR 7d	CAR 30d
	(1)	(2)	(3)	(4)
Panel A
Horizontal	–0.073	–0.075	–0.233**	–0.304*
	(–1.529)	(–1.206)	(–2.932)	(–1.969)
Conglomerate*Technology	0.001	0.002	0.002	0.013
	(0.396)	(0.586)	(0.532)	(1.324)
Horizontal*Technology	–0.006	–0.008	–0.006	0.001
	(1.041)	(1.106)	(0.669)	(–0.067)
Conglomerate*Target GOE	–0.055	–0.030	–0.023	–0.162
	(–1.676)	(–0.703)	(–0.425)	(–1.532)
Horizontal*Target GOE	–0.068	–0.057	–0.234**	–0.163
	(1.482)	(0.957)	(3.078)	(1.116)
Conglomerate*Target private	–0.005*	–0.005	–0.003	–0.001
	(–2.230)	(–1.648)	(–0.736)	(–0.119)
Horizontal*First foreign acquisition	–0.002	–0.018	–0.012	–0.148***
	(0.180)	(1.317)	(0.716)	(3.737)
Horizontal*First domestic acquisition	–0.009*	–0.007	0.001	–0.018
	(2.124)	(1.234)	(–0.189)	(1.078)
Horizontal*Number of prior Trx	–0.007**	–0.008*	–0.009*	–0.010
	(–3.025)	(–2.533)	(–2.228)	(–1.123)
Conglomerate*Serial acquisition	0.009	0.008	0.006	0.015
	(1.814)	(1.231)	(0.698)	(0.807)
Industry fixed effects	Yes	Yes	Yes	Yes
Year fixed effects	Yes	Yes	Yes	Yes
F	1.701***	1.430***	1.483***	2.007***
r^2	0.075	0.064	0.066	0.113
Panel B
Experience*Target public	0.006	0.013	0.023	–0.027
	(0.464)	(0.790)	(1.143)	(–0.578)
Experience*Target GOE	0.004	0.008	0.104	–0.005
	(–0.066)	(–0.110)	(–1.134)	(0.028)
Experience*Technology	–0.004	–0.003	0.002	–0.044**
	(0.961)	(0.505)	(–0.315)	(2.674)
Experience*Horizontal	–0.002	–0.002	–0.004	–0.002
	(0.807)	(0.717)	(0.931)	(0.200)
Experience*Conglomerate	0.002	0.002	0.002	0.000
	(0.835)	(0.582)	(0.428)	(0.036)
Experience*Deal size	0.002	0.001	0.002	0.005
	(1.653)	(1.044)	(1.023)	(1.325)
Industry fixed effects	Yes	Yes	Yes	Yes
Year fixed effects	Yes	Yes	Yes	Yes
F	1.618***	1.393***	1.477***	2.005***
r^2	0.069	0.060	0.064	0.110
N	2650	2647	2642	1952

t-values are reported beneath each respective regression coefficient. Heteroscedasticity-robust standard errors are not reported. Statistical significance at 1%, 5% and 10% levels are indicated with ***, * and *, respectively. For the sake of brevity, the regression coefficients for control variables and intercept are not reported.

Source: own elaboration.

Figure 5. Marginal effect of acquirers’ prior acquisition experience on post-acquisition (CAR 3d) cumulative abnormal returns with 95% confidence interval.

The chart represents marginal effect of acquirers’ prior acquisition experience (measured as a number of acquisition completed prior to the analysed transaction by the same acquirer). Marginal effects are derived from partial cross-sectional regression coefficients reported in Table 6.

Source: own elaboration.