Stock market liberalisation and acquisition outcomes: Evidence from a natural experiment

Abstract

AbstractTaking the Shanghai/Shenzhen‐Hong Kong stock connect policy as a natural experiment, we use a difference‐in‐differences approach to investigate how stock market liberalisation affects M&A outcomes. Employing a sample of Chinese listed firms from 2011 to 2020, we find that the stock market liberalisation leads to more positive M&A announcement returns. The positive effect on M&A announcement returns is the result of increased investor sentiment after market liberalisation. It is the investor sentiment mechanism through which stock market liberalisation has effects on M&A short‐term returns. Further analysis indicates that stock market liberalisation does not impose positive effects on long‐term M&A outcomes. We do not find evidence that M&As initiated by connected firms to be more value‐added.