Taylor and Francis Group and Juraj Dobrila University of Pula, Faculty of economics and tourism Dr. Mijo Mirković
Doi
Abstract
This paper investigates investors’ reactions to takeover rumours
in China’s stock markets from 2004 to 2014. While we find prerumour price run-ups (abnormal returns) for merger and
acquisition (M&A) targets, the pre-rumour market overreaction is
significantly positive only for target firms that are state-owned
enterprises (SOEs). There are no significant abnormal returns for
M&A rumour targets over a 41-day event window (20, þ20).
Nonetheless, capital market reactions to true rumours are higher
than reactions to false rumours, indicating that investors can typically distinguish between them. Finally, we document that while
firms with higher institutional ownership have a higher probability
of being the subject of false M&A rumours, rumoured targets with
higher institutional ownership experience lower market reactions