Acquirer characteristics and method of payment: Evidence from Chinese mergers and acquisitions

This study examines the effects of acquirer characteristics on method of payment of Chinese acquirers on the basis of a sample of 1370 mergers and acquisitions that occurred between 1998 and 2008. Using both buy and hold abnormal returns and calendar time abnormal returns approaches, we find that Chinese acquirers experience pre-acquisition abnormal returns ranging from 14.29% to 121% over the period of 12-36months prior to the acquisition relative to three different portfolio benchmarks. In the pre-bid period, acquisitions financed by shares outperform acquisitions financed by cash. However, in the post-acquisition period, we document no significant difference between cash-financed and equity-financed acquisitions. The study also finds that acquirer market value, Tobin's Q, state ownership and leverage have significant effects on the method of payment.