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

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  • Dong, Liping
  • Uchida, Konari
  • Hou, Xiaohong

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.

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  • Dong, Liping & Uchida, Konari & Hou, Xiaohong, 2020. "Are future capital gain opportunities important in the market for corporate control? Evidence from China," Journal of Corporate Finance, Elsevier, vol. 63(C).
    • Handle: RePEc:eee:corfin:v:63:y:2020:i:c:s0929119916302036
    DOI: 10.1016/j.jcorpfin.2017.10.006
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    More about this item

    Keywords

    Block trade; Stock liquidity; Event study; Corporate governance; China;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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