Will investors’ excitement last? Determinants of investors’ responses to cross-border acquisitions by Chinese firms

Zeng, Rong (Ratchel), Won-Yong Oh and Pengcheng Zhu

Journal of International Financial Markets, Institutions and Money, 2023, vol. 85, issue C

Abstract: Previous studies have found that in the short term, investors in emerging economies tend to react optimistically to cross-border acquisitions. However, studies in both financial economics and strategic management have acknowledged that there may be short-term abnormal returns in the stock market. As such, based on a behavioral perspective on investor valuation, we examine whether and when investors’ initial reactions are sustained using a sample of cross-border acquisitions by Chinese firms from 1998 to 2018. We find that the investor’s initial positive reactions are more likely to be sustained in the long term when (1) a cash payment is used for the acquisition, (2) the acquiring firm has more international acquisition experience, (3) the target firm’s country has a large economy, and (4) the target firm’s country has a culture of high uncertainty avoidance. Our findings extend the behavioral perspective on market reactions to cross-border acquisitions, and we contend that investors’ market valuations are a complex process that relies on various contextual cues. We contribute to an improved understanding of how investors evaluate a firm’s cross-border acquisitions over time.

Keywords: Behavioral perspective; Contextual cues; Cross-border acquisitions; Emerging countries; Investor reactions (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:85:y:2023:i:c:s1042443123000537

DOI: 10.1016/j.intfin.2023.101785

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