Acquisition size and institutional ownership: evidence from China

Abstract

Firm’s proper acquisition size is still an unresolved question. The extant literatures mention little about the determinants of firm’s acquisition size at micro economic level. With recent available data of acquisitions in Chinese stock market (Shanghai and Shenzhen) during 2003-2008, we estimate the effect of institutional ownership on firms’ acquisition size controlling financial and governance characteristics. In an industry fixed effect model, firms’ acquisition size is significantly and positively associated with firm size, Tobin’s Q, leverage ratio, cash holing level and internal capital expenditure. Acquisition size is positively related to some governance characteristics of firms such as board size, independency of board and activity of board, but negatively related to the duality of chairman and CEO. However, annual dividend, management holding, intangible asset, ownership concentration and the identity of ownership seems unrelated to acquisition size. The monitoring effect of different institutional ownership including qualified foreign institutional investors (QFII), social security fund (SSF), security firms (SF) and security investment funds (SIF) on the acquisition of listed firms are investigated. We find that QFII and SIF increase acquisition size of those over-acquisition firms while only SSF have significant monitoring effects on those under-acquisition firms.