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Cross-Border Mergers and Acquisitions in China: A Test of the Free Cash Flow Hypothesis

Indonesian Capital Market Review

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Title Cross-Border Mergers and Acquisitions in China: A Test of the Free Cash Flow Hypothesis
 
Creator Yane Chandera; Prasetiya Mulya School of Business and Economics
Lukas Setia Atmaja; Prasetiya Mulya School of Business and Economics
 
Subject —
 
Description This research investigates whether Chinese cross-border investments have positive impact onshareholders wealth and whether the amount of bidders’ free cash flow influences the shareholderreturns resulted from the acquisitions. The sample is based on 77 top Chinese cross-border investmentsduring the years 2005-2009 with each deal value of minimum US$100 million. The assessmentsof acquisition abnormal returns are based on the event study methodology (Brown & Warner, 1985).Cross-sectional regression analysis is used to determine the bidding firms factors which significantlyaffect the returns. Factors are examined using OLS with White’s heteroscedasticity-corrected standarderrors, since the assumption of homoscedasticity is likely to be violated. The study proves Chinesecross- border acquisitions result in positive abnormal returns which is consistent with synergyhypothesis. The amount of bidders’ free cash flow is also found to be marginally but positively associatedwith shareholders return which is consistent with Myers and Majluf’s pecking order hypothesisbut unsupportive of Jensen’s free cash flow hypothesis.
 
Publisher Management Research Center, Department of Management, Faculty of Economics and Business, U
 
Contributor —
 
Date 2014-08-13
 
Type Peer-reviewed Article
 
Format application/mbox
 
Identifier http://journal.ui.ac.id/index.php/icmr/article/view/3591
 
Source Indonesian Capital Market Review; Vol 6, No 2 (2014): July 2014
 
Language en