STUDY ON THE IMPACTS OF M&As ON THE PERFORMANCE OF LISTED COMPANIES IN CHINA’S CULTURAL INDUSTRY

Abstract

The emergence of cultural industry is strongly supported by the Chinese government. Policy support andtechnology-driven considerations have stimulatedrapid mergers and acquisitions (M&As) in China’s cultural industry. The burgeoning scale of industrial M&As, however, has not necessarily improved the quality. In the case of impending market saturation, advancing M&Asin violation of market rules may lead to bubble accumulation in the capital market. In addition, dominated by intangible assets, the cultural industry features relatively unstable products and immature industries, which can lead to a deviation in the valuation of M&A assets from the real value. Once the M&A targetexperiences operational issues, it will suffer greater losses than those brought by M&Asin traditional industries. Therefore, the cultural industry is exposed toa high valuation risk. In addition, its structure differs greatly from other industries because it has a high degree of product line differentiation, which makesit difficult for value chain coupling after companies in the cultural industry merge with other industries. There is also much uncertainty about cross-industry M&A stimulating performance. These uncertainties may hinder the growth of China’s cultural industry. Therefore, mystudy focuses on the cultural industry. This study examines the M&A performance of listed companies in China’s cultural industry through empirical analysis and provides suggestions for its development.Thisstudy first discusses the main types, characteristics,and reasons for surge in M&Asin China’s cultural industry, and then empiricallyanalyzes the M&A performance of listed companies in the cultural industry from the perspectives of stock performance and financial returns. On the one hand, based on the event studymethod, this empirical study analyzes the impacts of M&Asin the cultural industry on the short-term and long-term abnormal stock return of theactiveacquirerthrough the CAPM modelandthe Fama–French 3-factormodel; on the other hand, an empirical analysis is made on the impacts of M&Asin cultural industry on the company’s future financial return using the propensity score matchingand difference-in-difference (DID)methods.This study finds that the short-term abnormal return after the M&Asin cultural industry is iiisignificant, but not the long-term cumulative abnormal stock returns. Therefore, it is concluded that the impact of M&Asof listed companies in cultural industry on short-term abnormal stock returns is only a result of market overreaction, and the market will be rational in the long run. This study also examines whether the M&A is cross-industry or whether the acquirer is a cultural enterprise has anysignificant impact on the long-term cumulative abnormal stock returns.Concurrently, the study examines the factors leading to abnormal returns from M&As, and finds from the analysis on factors leading to short-term abnormal returns that the size of market value, the extent of valuation,and whether the company is a state-owned company have a significant impact on the short-term abnormal market returns from M&As.On the other hand, this study finds that the financial returns of sample companies have not improved after M&Asin cultural industry, but have declined instead. This is likely because the two companies cannot coordinate andmerge well after M&A, which instead increases frictions and results in a decline in financial returns.Based on the features of M&Asin China’s cultural industry and the empirical results of the decline in financial returns of listed companies after M&Asin cultural industry, this study suggests plausibleimprovementsin M&A performance of listed companies in China’s cultural industryat the level of government, intermediary agent, industry guidance and enterprise.This study hasfour chapters: Chapter 1 is the introduction, which introduces the research background, methods, significance,and related literature review. Chapter 2 introduces the current situation of M&Asin China’s cultural industryand presents an analysis of the main types and characteristics of and reasons behind the new wave of M&Asin China’s cultural industry. Chapter 3 presents the empirical analysis. Based on various empirical research methods, this study analyzes the impacts of M&Asin cultural industry on the short-term and long-term abnormal stock returns and financial returns. Chapter 4 concludesand makes suggestions for policy makers.