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Are future capital gain opportunities important in the market for corporate control? Evidence from China
Institution:1. Business School, Beijing Wuzi University, #321 Fuhe Street, Tongzhou District, Beijing 101149, China;2. Faculty of Economics, Kyushu University, 6-19-1, Hakozaki, Higashiku, Fukuoka 812-8581, Japan;3. School of Management, China University of Mining and Technology, No.1, Daxue Road, Xuzhou, Jiangsu 221116, China;1. Graduate School of Economics, Kyushu University, 744, Motooka, Nishiku, Fukuoka 819-0395, Japan;2. Faculty of Economics, Kyushu University, 744, Motooka, Nishiku, Fukuoka 819-0395, Japan;1. ESSEC Business School, France;2. Cass Business School, City, University of London, United Kingdom;1. School of Finance, Capital University of Economics and Business, China;2. Faculty of Economics, Kyushu University, Japan;3. Graduate School of Economics, Waseda University, Japan;1. School of Economics, Kyushu University, 744 Motooka, Nishiku, Fukuoka 819-0395 Japan;2. Faculty of Economics, Kyushu University, 744 Motooka, Nishiku, Fukuoka 819-0395 Japan
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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