Equity overvaluation, insider trading activity, and M&A premium: Evidence from China

Yongshen Zhang, Qing Zhang, Xiaoliang Yu and Qiushu Ma

Pacific-Basin Finance Journal, 2023, vol. 80, issue C

Abstract: Based on catering theory and M&A arbitrage theory, this paper focuses on the motivation and economic consequences of high premium M&A in China's capital market. The main research conclusions are as follows: First, the more equity overvaluation, the higher the merger premium and the short-term excess market return. Second, the more insider trading behaviour after equity overvaluation, the higher the merger premium and the short-term excess market return. Third, the greater the short-selling pressure after the equity overvaluation, the lower the merger premium and the weaker the short-term excess market return. Finally, this paper studies the economic consequences of M&A after equity overvaluation, and finds that M&A driven by equity overvaluation can only improve M&A performance in the current year, but cannot achieve long-term synergies. Based on the theory of M&A arbitrage, this paper studies the explanation mechanism of equity overvaluation to high-premium M&A in China's capital market, provides new evidence for executive's agency behaviour in M&A. This paper has important policy implications for the healthy development of M&A in the current emerging capital market.

Keywords: Equity overvaluation; M&A premium; Insider behaviour; Short selling (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:80:y:2023:i:c:s0927538x23001130

DOI: 10.1016/j.pacfin.2023.102047

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