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Are future capital gain opportunities important in the market for corporate control? Evidence from China

Liping Dong, Konari Uchida and Xiaohong Hou

Journal of Corporate Finance, 2020, vol. 63, issue C

Abstract: Stock prices of Chinese target companies react positively to the announcement of block trades. Such a reaction is greater when publicly tradable shares (PTS) are transferred than when bidders obtain nonpublicly tradable shares (NPTS). PTS transactions also perform significantly better in the long run than do NPTS transactions. These results suggest that stock liquidity matters for corporate control rights transactions to improve target firms' management. We also find that bidders appoint a new CEO or chief director in more than half of the cases of block trades. Better stock price performance for PTS transactions comes mainly from targets with high Tobin's Q. Capital gain opportunities are likely to motivate bidders to expand target firms' businesses for capital gains.

Keywords: Block trade; Stock liquidity; Event study; Corporate governance; China (search for similar items in EconPapers)
JEL-codes: G34 G38 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.jcorpfin.2017.10.006

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