Make a promise: the valuation adjustment mechanism in Chinese private target acquisitions

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Bi, Xiaogang (2021) Make a promise: the valuation adjustment mechanism in Chinese private target acquisitions. The European Journal of Finance . pp. 1-24. ISSN 1351-847X

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Abstract

The valuation adjustment mechanism (VAM) is a contingent-payment contractual arrangement used in the Chinese mergers and acquisitions (M&As) market. The ‘two-direction payment’ design of Chinese VAMs can reduce deal uncertainty and generate value, especially for poorly performing companies that can use VAM contracts to boost short-term performance. I find in this empirical investigation that acquirers applying VAM terms have significantly higher market returns after addressing endogeneity. I also document that poorly performing bidders sign larger VAM contracts, pay higher bid premiums and achieve higher operating performance, and which types of firms are more likely to adopt a VAM in transactions.

Item Type: Article
Keywords: Valuation adjustment mechanism; mergers and acquisitions; takeovers; contract design; contingent payment
Schools/Departments: University of Nottingham Ningbo China > Faculty of Business > Nottingham University Business School China
Identification Number: 10.1080/1351847X.2021.1903963
Depositing User: Wu, Cocoa
Date Deposited: 12 Apr 2021 06:49
Last Modified: 12 Apr 2021 06:49
URI: https://eprints.nottingham.ac.uk/id/eprint/65093

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