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Archives of Business Review – Vol. 8, No.12
Publication Date: December 25, 2020
DOI: 10.14738/abr.812.9506.
Shao, R., Wang, Y., Wang, H., Geng, Z., & Ma, L., (2020). Media Exposure and Acquisition Premium: Evidence from Chinese Investing
Companies. Archives of Business Research, 8(12). 142-161.
Media Exposure and Acquisition Premium: Evidence from Chinese
Investing Companies
Ruchen Shao
Guanghua School of Management,
Peking University, Beijing, China
Yanting Wang
Guanghua School of Management,
Peking University, Beijing, China
Hao Wang
Fisher College of Business,
Ohio State University, Ohio, U.S.A.
Zongze Geng
Guanghua School of Management,
Peking University, Beijing, China;
Li Ma
Guanghua School of Management,
Peking University, Beijing, China;
ABSTRACT
Acquisition deals often draw the attention of the media and the media
exposure influences the decisions of stakeholders. Especially attractive
in recent years are deals that Chinese companies are investing actively
both within China and across the globe. How does media exposure
influence the price premium of the target companies that Chinese
companies acquire? Building upon the literature of economics and
psychology, we develop competing hypotheses on the potential effect.
In addition, we argue that the effects of media exposure are different
between the Chinese companies’ domestic and international
acquisition deals. The data from the recent decade’s transactions
indicate that media exposure is associated with the higher premium,
supporting the attention-based view. In addition, we hypothesize the
effect of media exposure is larger for international deals than for
domestic deals. Theoretical and practical implications are discussed.
Keywords: Media exposure; International business; Acquisition; Premium;
China
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INTRODUCTION
Business activities often attract attention of news reporters and the information dissimulation by
media has great impacts on the stakeholders. For the acquisitions, media exposure does shape the
dynamics of the acquirers’ decisions, such as the premium paid. A salient example is the recent
battle over controlling power of the Chinese real estate giant, Vanke. The battle was widely
reported by the media and the premium paid before and after the media exposure demonstrated
large difference. On July 22, 2015, the acquirer Qianhai Life Insurance paid only 6.27 percent
premium when buying the stock of Vanke; the deal was later on widely reported by the media from
December 7, 2015; afterwards, another acquirer, Western Leadbank Fund Management Co., paid
47.58 percent premium on December 9, 2015. Why did the acquirers pay so different prices before
and after media exposure? In addition, is the effect of media exposure consistent for acquisition
deals across the border or within a country? To both questions, the current theories provide
contradictory explanations with the different focus from economic and psychological roots. This
paper aims to resolve such conflicts by examining the media exposure effects on acquisition
premium by Chinese investing companies.
On the one hand, the efficient market theory suggests that the information disclosed from media
exposure can help business leaders make more effective decisions regarding the focal deals [1,2].
The dissemination of information through media alleviates the information asymmetry between
corporates and the investors in the market; consequently, the stock price, stock returns and the
price and premium paid in acquisitions deals will respond to the disclosure of information with
efficient evaluation of the firm [3,4].
On the other hand, the media effect under the traditional efficient market assumptions are different
from the attention-based view [5]. According to attention-based view of the firm, decision makers
with bounded rationality are constrained by their ability to process the information. Hence, in the
stock market, investors tend to buy the stocks which catch their attentions, and this suboptimal
purchase set will drive the price of those stocks rising due to their limited attention [6]. These two
contradictory predictions of the media effects remain an open question for the theory of firm.
In this paper, we choose acquisition as the context and analyze how media exposure of the
acquisition deals influences the premium paid by Chinese investors because the characteristics of
media impacts might be quite different in acquisition decisions and provide a proper context to
resolve the conflicts and advance our understandings of theory of the firm for two reasons. First,
firms might have incentives to maximum the return from dissimulating the news with the
probability of the most optimal success during important corporate events [7]. Second, the media
might also actively publish sensational information to catch limited attentions from the investors
for the readership [8]. Therefore, it is both necessary and important to explore how media
exposure influences the asset evaluation of target firms by the acquirers. Because Chinese
companies are investing actively not only locally but also globally, we also analyze whether the
premium paid is different between the domestic and international deals [9]. The possible
interaction effect was also analyzed.
Our study contributes to the strategy and international business literature in four ways. First,
theoretically, we juxtapose the efficient market theory and attention-based view to compare their
predictions on the effect of media exposure to acquisition premium. The two theories lead to
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Shao, R., Wang, Y., Wang, H., Geng, Z., & Ma, L., (2020). Media Exposure and Acquisition Premium: Evidence from Chinese Investing Companies.
Archives of Business Research, 8(12). 142-161.
conflicting hypotheses 1a and 1b, and we test empirically which theory is more applicable and test
their boundary conditions.
Second, we contribute to the stream of research on media exposure in the merger and acquisition
(M&A) literature. Although the media effects have been relatively well established in standard
context such as in stock returns and corporate governance [10], such effects are still much less
studied in M&A context. In a non-standard context of acquisition processes, firms might not
disclose important information such as the evolvement or the processes of the negotiation [11].
Especially important, we checked the media exposure of the potential deals before the transaction
dates to capture the effect, making the comparison between efficient market theory and attention- based view salient.
Third, Chinese companies have become the most active investors in the world. These companies
are investing heavily both globally and locally. Their behaviors represent the recent trend of
investment from the emerging markets. Compared with acquisition studies in developed
economies, the research in emerging markets are relatively underdeveloped [12]. As emerging
markets are normally lacks of strong market-based institutional framework for internal and
external governance, it is critical to understand their asset pricing strategy under the exposure of
media in the weak institution context [13].
Last but not least, our research also contributes to the understanding of business theory and
practice in non-English speaking countries. Although the location-specific factors have been
identified with linguistic impacts [14], the research still largely focus on the English-speaking
countries or news in English media, leaving non-English speaking countries relatively
underdeveloped [15,16].
Using the data in the last decade from the Thomson Securities Data Company (SDC) Platinum M&A
database, we found that Chinese companies paid higher premium when their deals were covered
by the commercial media in China than when not covered; they also paid higher premium when
their target companies were located in foreign countries than when their target companies were
in China. The difference caused by media coverage was larger for international deals than for
domestic deals: although the difference was not statistically significant, it was practically important
for Chinese investing companies to be cautious. Our results offer important theoretical and
practical implications, discussed at the end of the text.
HYPOTHESES DEVELOPMENT AND CONCEPTUAL FRAMEWORK
Both efficient market theory and attention-based view have addressed the issue at hand. Efficient
market theory has dominated the curricula of the business schools and the assumptions of policy
makers for many decades [17]. The efficient market theory can be traced back to the famous slogan
of “the invisible hands” from Adam Smith. Most notably,
It is not from the benevolence of the butcher, the brewer, or the baker that we
expect our dinner, but from their regard to their own self-interest. We address
ourselves not to their humanity but to their self-love, and never talk to them of
our own necessities, but of their advantages [18].
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Thus, the economists and management scholars following this stream of research argue that the
market mechanism itself is efficient. In a free market, players in the market are able to serve their
own self-interest in a way that these players’ interests as well as the whole society’s welfare will
be maximized [19].
The seminal work in psychology indicated the widely spread phenomenon of the availability
heuristics [20]. The stream of research indicates that when some information is made available to
individuals, the individuals tend to estimate that the information covered is present more than its
true share in reality. More formally extended to the context of firms, Ocasio’s attention-based view
argues that firm decision makers are only bounded rational [5, 21]. As a result, the information to
which they pay their attention influences their choice of the course of action, such as paying a high
price for the deals or not. The attention-based view and its theoretically relevant perspectives
predict that, due to the bounded rationality and limited attention to process all the information,
investors tend to over-react to the information they receive. When some critical events were
reported, investors tend to evaluate the information to degrees larger than the actual information
[22]. Even when the media exposure revealed offered only obsolete rather than any new
information, it also influences the market reaction to the valuation of the companies [23].
Although both theories provide significant insights about the firm, they provide different
predictions for the effects of media exposure in acquisition decisions. This paper tests this
boundary conditions with the decision of acquisition premium. Specifically, we develop hypotheses
based on each of the two theories and empirically test which one of them holds true in M&A context.
Media Exposure and Premium
Economics Perspective Applied: Efficient Market Theory
The efficient market theory literature predicts the market information disseminated through the
media alleviates the information asymmetry between corporates and the investors; consequently,
the acquisition price should reflect the existence of media exposure. For instance, Fang and Peress
found the stocks with no media coverage earn higher returns than high media coverage by studying
cross-sectional stock returns and their media coverage in four major US newspapers (namely, New
York Times, USA Today, Wall Street Journal, and Washington Post) [15]. They argue that media
exposure increased the information depth of the covered stocks and hence simultaneously reduced
the information asymmetry for evaluating the future return. A more recent study by Peress
demonstrated media contribute to the efficiency of the stock market by improving the
dissemination of information among investors and its incorporation into stock prices [24]. Overall,
this approach views that the existence for a media is because the value of information it provides
for the readers and hence the investors will pay for the information that could reduce the
asymmetry effects, making the market more efficient.
Applying this stream of research to the context of media exposure and acquisition premium, media
exposure reduces the problem of information asymmetry in investment and evaluation of firms
[25]. The media coverage of a potential acquisition can help reduce the asymmetry, and then
reduce the cost of lack of trust in the acquisition. As a result, the costs associated with the contract
will be seen as lower by the acquirer companies [26]. Media exposure has been found to influence
stock returns of the public companies [15, 27].
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Shao, R., Wang, Y., Wang, H., Geng, Z., & Ma, L., (2020). Media Exposure and Acquisition Premium: Evidence from Chinese Investing Companies.
Archives of Business Research, 8(12). 142-161.
In addition, the acquirers normally assess the targets with all available information before the deal
is announcement to the public [28]. The acquisition price is based on the true value of the target
firm [29]. The managers in the target companies are insiders and normally possess richer and more
accurate information regarding the true value of the target companies than the managers in the
acquirer companies. Media exposure helps reduce the information asymmetry such that the
acquirer companies’ managers obtain more information regarding the true value of the target.
Thus, they become less likely to pay high premium than in the context where no media exposure
occurs. Therefore, we predict:
Hypothesis 1a. Media exposure of an acquisition deal is negatively associated
with the premium of the deal.
Psychology Perspective Applied: Attention-Based View
Applying the attention-based view to this context, media coverage of a potential transaction tends
to make readers to formulate cognition that the type of transactions is more often to occur than
they actually did, the companies reported are more influential than they actually were. Before a
transaction of M&A, firm decision makers often are diligent and alert toward all relevant
information regarding the deal. When a target company and the proposed deal are reported by the
media, the attention they paid to tends to increase their perceived likelihood of the value of the
acquisition. Consequently, they tend to have a stronger desire to complete the deal, even if a higher
premium is required. Previous studies also indicate that the media coverage can offer information
that the target company’s managers enjoy legitimacy as judged by the industry such that
acquisition premium is justified [30].
In addition, especially to our sample, many Chinese companies have strong desire to become more
influential. Since the 1980s and especially after “go global” policy was initiated in 2001, “making
our company one of Fortune 500” has become a long-lasting goal pursued by many Chinese
companies [31]. Being reported often means that the acquirer company is influential [32]. This
tendency might strengthen the CEO hubris which has been linked to the M&A premiums in the
previous literature [33]. It is possible that the hubris of the business leaders—when they are
acquirers in these deals—both influence the media exposure and acquisition premium.
Empirical studies have already found the effect of media exposure on stock price, supporting the
idea of attention-based view [23]. Valuation of a firm is higher if its controlling shareholder
receives more non-negative media reports [26]. An investigation by McKinsey of more than 200
investors found that 80 percent of them were willing to pay a premium for better corporate
governance [34]. Hence, we propose:
Hypothesis 1b. Media exposure of an acquisition deal is positively associated
with the premium of the deal.
Origin of the Target Company
The two streams of literature also render different predictions on whether the Chinese investing
companies are willing to pay a premium when their acquisition target companies are located
within China or from abroad.
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Economics Perspective Applied: Efficient Market Theory
Efficient market theory assumes that decision makers are rational in pursuing their own firms’
economic interests. As a result, when deciding what a price is appropriate in an M&A deal, firm
leaders tend to consider the economic, institutional, and cultural aspects. For example, the
differences between the target companies and the acquiring companies often constitute barriers
for subsequent integration, thus decreasing their willingness to pay a high price [35]. Larger
distance in institutions often make acquisitions more difficult to succeed [36]. Especially hard is
the post-acquisition integration because failure rate is about two-thirds in international
transactions.
China is a relatively latecomer in the global economy cooperation [37]. As a result, the management
practices in China demonstrate sharp differences from those of their cohorts in the developed
countries [38]. In addition, the managers in China also lack the international business experiences,
making them less capable to manage foreign divisions effectively [39]. From the efficient market
theory’s rational perspective, Chinese investing companies shall be less willing to purchase foreign
companies compared to Chinese companies. In other words, the distances in institutions, culture,
and economy conditions reduce the willingness of the Chinese investing companies to pay a high
price. Possibly only a lower price can attract them to surmount the management and integrating
barriers to buy foreign target companies in M&A deals.
Previously an empirical study has found that among company takeovers, the post-integration
performance is much higher for cases when the acquiring companies enjoy higher status than the
target companies [40]. At the same time, most Chinese managers believe that compared to their
cohorts in developed countries, the Chinese companies possess only lower status (in this study’s
context, compared with Sweden companies) [41]. Thus, we argue:
Hypothesis 2a. Acquisition deals with foreign target companies have lower
premium than acquisition deals with domestic target companies.
Psychology Perspective Applied: Attention-Based View
As recommended by the attention-based view, decision makers are not always rational, they often
formulate perceptions based on what information they are exposed to [21]. An acquisition deal of
buying a foreign company could lead to better fulfillment of the ego of the company leaders. These
deals often catch the attention of the decision makers so much that they even possibly forget the
true value of the deal but are willing to pay a high premium. For example, people tend to develop
product country images based on their personal experience or information acquired from media
[42]. Price premiums are paid to Italy-made bags, Germany-made vehicles and Japan-made
appliances. In the same category, all leather bags from Italy could sell much more expensively than
those from the US, and then than those from Vietnam [43].
Decision makers from different countries are often aware of their national identity. Such attention
makes their decisions different from the rational predictions. For example, in the case of company
acquisitions, some company leaders could even direct their attention toward irrational aspects
such as the possible effect of the deal on their national people’s pride. An empirical study
investigating 295 cases of companies from developing countries acquiring companies from
developed countries [44]. They found that among these deals, when the buyers’ attention was
directed toward the pride of their national people relevant to the deals, they are willing to pay a
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Shao, R., Wang, Y., Wang, H., Geng, Z., & Ma, L., (2020). Media Exposure and Acquisition Premium: Evidence from Chinese Investing Companies.
Archives of Business Research, 8(12). 142-161.
premium twice as much as in the cases when no such national pride consideration was present.
Obviously, attention of decision makers could lead to irrational outcomes on the acquisition
premium.
The consideration of target companies being domestic or foreign is especially remarkable for
Chinese investing companies. China has been the largest developing country for long, invaded by
many stronger foreign countries numerous times in the past two centuries, making the Chinese
nationals very sensitive to issues relevant to national pride and respect [45]. Many Chinese local
government agencies are willing to offer large size of benefits to attract foreign investment. Even
now, the flattery attitudes toward foreign brands, foreign investments, and even foreign relatives
have been persistent in China for many years. The pride associated with leading a company
successfully acquiring a foreign company will encourage many Chinese business leaders to act
boldly, including bid high.
Hypothesis 2b. Acquisition deals with foreign target companies have higher
premium than acquisition deals with domestic target companies.
Interaction Effect Predicting Premium
Although the efficient market theory and the attention-based view render different predictions
regarding the two pairs of main effects above, their prediction on the interaction effect is
consistent. Based on the efficient market theory, information asymmetry is more salient a problem
for international deals than for domestic deals [46]. Media exposure more effectively reduces the
problems associated with lack of information, lack of trust, and fear of institutional distance
involving foreign target companies than the problem involving domestic target companies.
Consequently, the access to the information regarding the international acquisitions is more
important and useful for investing companies than the information regarding domestic
acquisitions [7]. Thus, the effect on premium by media exposure on acquisitions with foreign
targets tends to larger than on acquisitions with domestic targets.
The attention-based view of the firm predicts the same direction of hypothesis. Psychologically,
pride can be associated with international deals where a foreign company is acquired by a Chinese
company. Such pride tends not to appear in domestic deals when a domestic Chinese company was
acquired. In addition, the media also have the incentive diffuse and exaggerate such sentiment in
order to catch the attention from readers [8]. Especially for the acquirers from emerging markets
such as Chinese firms, the national pride might play an important role to drive managers to over
bid [44]. Consequently, media exposure on deals of acquiring a foreign target company makes the
pride more salient in driving the decision makers to become willing to pay a high premium [5].
Hypothesis 3. Target company location moderates the relationship between
media exposure and acquisition premium; specifically, for the Chinese
acquirer companies, when target companies are located in foreign countries,
the relationship between media exposure and acquisition premium is stronger
than when target companies are from China.
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Archives of Business Research, 8(12). 142-161.
Variables and Measurement
Dependent variable
The dependent variable in our analysis, acquisition premium, was measured as the percentage
difference between a purchase price and a target firm’s value before the date of the announcement
of the acquisition. The SDC database recorded the premium at three time points: one day, one week
and four weeks prior to the date of the announcement. To ensure the robustness of our results, we
used all of the three measures in data analyses (Further explanations for the computation of the
premium measure, using the 1 Day premium as an example. The 1 Day premium measure is called
PREM1DAY in the SDC dataset. Specifically, from the SDC manual, “Premium 1 day prior to
announcement date: Premium of offer price to target closing stock price 1 day prior to the original
announcement date, expressed as a percentage: [(HOSTPR – HOSTC1DAY) / HOSTC1DAY] * 100”
(SDC, 2017, p. 256). Among them, “HOSTPR is price per common share in host currency: Price paid
per common share or partnership unit by the acquirer in the transaction, stated in the currency of
the target company’s nation. In cases where a range of prices was paid, HOSTPR is the highest price
paid per share” (SDC, 2017, p. 121). HOSTC1DAY is “target stock price 1 day prior to announcement
date in host currency: Closing price of target’s common stock on primary stock exchange 1 day
prior to original announcement date of the transaction stated in the currency of the target
company’s nation” (SDC, 2017, p. 105).). The SDC approach to measuring premiums has been
widely used in prior acquisition research in management and other fields [51, 52].
Independent variable
Our independent variable in the study is media exposure of the acquisition deals. In
operationalization, media exposure can be measured by the intensity of exposure (i.e., how
intensively the deal was reported by the media), valence of exposure (i.e., the degree to which
media coverage talks about favorable attitudes toward the transaction), the type of media covering
the deals (i.e., whether globally recognized media, local media, industrial media, or financial media
has covered the deal), and so on. In our context, the acquirers were all Chinese companies such that
it is reasonable to limit our search to Chinese media only.
In China, the media relevant to the acquisition deals can be divided further into three types: official
media, commercial media and industrial media. Among them, official media may cover a deal if the
deal is important for development of certain areas or industries. Official media includes Renmin,
Xinhua, and so on. Commercial media mainly reports international and domestic important
business events such as when the size of the transaction is large. Commercial media includes Sina
Finance, NetEase Finance, Finance, China Business News, The Economic Observer, iFeng, among
others. Industry media tends to report a deal if the deal is important to its specific industry. For
example, a deal in the coal industry is more likely to be reported by the media in the energy sector.
Industry media includes Southern Energy Observation, Stainless Steel Trading, China Aluminum,
among others. Since the spread of news need take some time, we decide to choose 2 days before,
rather than on the announcement day of acquisition.
For two reasons, we chose to use exposure of commercial media. First, business decision makers
more likely read commercial and industry media than official media, because the latter often
focuses on political and social news. In addition, commercial media covers topics more generally
relevant to investment decisions, but industry media more likely focuses on single industrial
sector. However, in our databases, the majority of the transactions are cross-industry ones, as
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indicated by the 4-digit SIC code showing that only 13.9 percent of the deals occurred within the
same industry. Second, empirically, the commercial media exposure variable offers the largest
variance for us to analyze the data. Based on the data we obtained from the search, the commercial
media was the most likely (31.2% of the deals) to report the deals, followed by industry media
(14.3%), and the least likely official media (2.5%).
In addition, the news reports of a deal were often highly similar (possibly they copy from one
another). Thus, we believe it is the most reasonable if we use a dummy variable rather than a
continuous variable covering a measure such as density [26]. Following the reasoning, we develop
the media exposure as a dummy variable: it equals to “1” if any of the information about the
acquisition was exposed by these commercial websites at least 2 days before acquisition
announced date, and “-1” otherwise [53]( Although many studies use 1 and 0 to denote dummy
variables, such practice could lead to a serious problem when computing interaction term. For our
study’s purpose, we plan to analyze the interaction effect comparing the difference between the
acquisition premium caused by media exposure in global deals and the premium caused by media
exposure in local deals (i.e., the “difference in difference” approach). Thus, using 1 and -1 for the
two levels of the dummy variable will solve the problem. In addition, when using ANOVA, the
problem does not exist anymore.).
Moderator
To test our hypothesis, we need to specify whether a deal involved a Chinese domestic target firm
or an international firm. We created a dummy variable, cross border, with its value assigned to be
“-1” if the target firm was located in China and “1” if the target firm was located in other countries
in G20.
Control Variables
Premium of the acquisitions is influenced by a number of factors other than those modeled in our
paper. We include the most relevant ones that could distort the relationships we are interested to
test in the paper. First, we included deal size as a control variable because large deals are both
more likely to be covered by commercial media [51, 52]. Deal size was measured as the value of
transaction, which was reported in millions of US dollars (USD). In our dataset, the value of
transaction ranged from less than 0.5 million USD to 12.8 billion USD. Following the norm in
studying M&A, we computed the natural logarithm of the deals to reduce the problem of non- normal distribution in observations [54]. Alternative variables indicating the deal size include the
target company’s number of employees, the target company’s current assets, and the target
company’s total assets. However, all these three variables highly correlated with the value of
transactions (r’s ranged from .27 to .58, p’s < .001). Consequently, we use the value of transaction
as the only control variable for deal size to reduce the potential problem of multicollinearity.
An acquisition deal is also labeled as having different attitudes. “Friendly” attitudes mean that “the
board recommends the offer”, “neutral” attitudes mean that “the management of the target has
nothing to do with the transaction”, “not applicable” attitudes mean that “the board is not
applicable (i.e. open market repurchases, split-offs and spinoffs)”, “unsolicited” attitudes mean that
“the offer is a surprise to the target’s board and has not yet given a recommendation”, and “hostile”
attitudes mean that “the board officially rejects the offer but the acquirer persists with the
takeover”. Thus, we controlled the category variable of acquisition attitude, which was coded as
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Shao, R., Wang, Y., Wang, H., Geng, Z., & Ma, L., (2020). Media Exposure and Acquisition Premium: Evidence from Chinese Investing Companies.
Archives of Business Research, 8(12). 142-161.
kept nearly same when the interaction term was added to the regression equations (Models 3, 6,
and 9). In addition, when all the transactions with extremely low premium (lower than 50%) were
included in the dataset, the results remain virtually the same (see Table 3). Thus, the results
supported the attention-based view applied to this context (H1b), but were different from the
efficient market theory (H1a).
Table 2. Regression Results Testing Hypotheses (The cases with discount larger than 50% were
deleted)
Variable
Premium-1 day Premium-1 week Premium-4 weeks
Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8 Model 9
Constant
-2.119 11.263 11.359 1.496 15.925 16.062 -8.001 7.185 7.725
(13.076
)
(13.195
)
(13.210
)
(13.435
)
(13.533
)
(13.548
)
(13.755
)
(13.824
)
(13.828
)
Value of
transaction
5.434* 5.989* 5.886* 4.852 5.756* 5.614* 3.904 4.952 4.410
(2.489) (2.521) (2.561) (2.561) (2.590) (2.631) (2.611) (2.640) (2.679)
Attitude -0.449 -2.051 -2.065 -0.665 -2.433 -2.454 2.105 0.241 0.157
(2.832) (2.814) (2.816) (2.914) (2.890) (2.892) (2.975) (2.945) (2.945)
Industry
relevance
0.536 -0.524 -0.551 -0.313 -1.45 -1.487 -1.826 -3.025 -3.168
(2.326) (2.304) (2.308) (2.393) (2.366) (2.370) (2.436) (2.404) (2.406)
Media
exposure
4.279* 4.696 3.804* 4.381 3.782* 5.991*
(1.756) (2.505) (1.806) (2.573) (1.844) (2.615)
Cross border
deals
8.205*** 8.135*** 9.745*** 9.648*** 10.583**
*
10.213**
*
(2.460) (2.480) (2.528) (2.549) (2.570) (2.588)
Media
exposure ×
Cross border
deals
0.575 0.797 3.056
(2.461) (2.528) (2.565)
Note: Significance levels (two-tailed): † p < .10; * p < .05; ** p < .01;*** p < .001.
The result in Table 2 also shows that global deals have higher premium. For example, for the
premium-1day measure (Model 2), global deals had 8.21 percent higher premium with p-value is
0.001 (s.e. = 2.46%) than domestic deals. The same effect existed for the other two premium
measures. The effect kept the same when the interaction term was added. In addition, the effect
also remained virtually the same when the deals with more than half discount were included in the
analyses (Table 3). Thus, the results supported the attention-based view applied to this context
(H2b), but were different from the efficient market theory (H2a).
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Table 3. Regression Results Testing Hypotheses (including all cases)
Variable
Premium-1 day Premium-1 week Premium-4 weeks
Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8 Model 9
Constant
-10.728 3.504 3.448 -5.405 10.194 10.164 -20.3 -3.781 -3.569
(13.162
)
(13.270
)
(13.282
)
(13.580
) (13.664) (13.676) (13.847
) (13.909) (13.918)
Value of
transaction
6.611** 7.209** 7.293** 6.144* 7.102** 7.147** 5.964* 7.163** 6.846*
(2.519) (2.544) (2.582) (2.599) (2.619) (2.659) (2.650) (2.666) (2.706)
Attitude
0.422 -1.206 -1.197 -0.261 -2.093 -2.088 3.323 1.352 1.317
(2.885) (2.961) (2.863) (2.976) (2.946) (2.948) (3.035) (2.999) (3.000)
Industry
relevance
1.196 0.102 0.126 0.414 -0.777 -0.764 -0.828 -2.084 -2.173
(2.387) (2.361) (2.365) (2.463) (2.431) (2.436) (2.512) (2.474) (2.479)
Media
exposure
4.344* 3.983 3.845* 3.651 3.487 4.844
(1.791) (2.578) (1.844) (2.655) (1.877) (2.702)
Cross
border deal
9.155*** 9.219*** 10.918*** 10.952**
*
12.127**
*
11.887**
*
(2.530) (2.553) (2.605) (2.629) (2.652) (2.675)
Commercia
l Media ×
Cross
Border
-0.494 -0.266 1.856
(2.536) (2.611) (2.657)
Note: Significance levels (two-tailed): † p < .10; * p < .05; ** p < .01;*** p < .001.
Hypothesis 3 predicts an interaction effect that the difference in premium caused by media
exposure is larger for global deals than for domestic deals. This hypothesis, however, was not
supported. Checking at the models at Table 3 where the extremely low premium cases were added
back to analyses led to the similar conclusion.
We further tested all hypotheses and demonstrate the pattern of difference using ANOVA. Here, we
deleted all the 29 transactions with extremely low premium, and used the premium-1day as our
dependent variable. Results indicated that the effect of media exposure was significant, F (1, 694)
= 6.15, p = .013. The effect of the location of target companies was also significant, F (1, 694) = 8.08,
p = .005. The interaction effect was not significant either, F (1, 694) = 0.38, n.s. The means of all
conditions were plotted in Figure 1 (Panel a). Although the difference caused by media exposure
was different in the Figure 1, statistically, the “difference in difference” was not significant. When
using the other premium measures, and adding the 29 extremely low premium transactions back
to analyses, the results remained virtually the same (Panel b).
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Shao, R., Wang, Y., Wang, H., Geng, Z., & Ma, L., (2020). Media Exposure and Acquisition Premium: Evidence from Chinese Investing Companies.
Archives of Business Research, 8(12). 142-161.
Panel a: Deleting the observations that have premium lower than -50% (N = 698)
Panel b: All observations (N = 727)
Figure 1. Premium (1 Day) Paid by Chinese Acquirer Companies under Different Conditions
CONCLUSION
Using 727 domestic and international acquisitions in which Chinese companies invested, we found
that these companies paid higher premium when the deals were reported by commercial media. In
addition, the Chinese companies also paid higher premium when they invested in foreign
companies from the G20 countries other than China, than when they invested in Chinese
companies. The difference in premium paid caused by media exposure was a little higher when
they invested in foreign companies than when they invested in Chinese companies. Although the
difference was not statistically significant, it still is economically important. The findings contribute
to the literature as well as to practice.
We believe the reason possibly caused the results different from our H3 is our invalid assumption
of the degree of information asymmetry for domestic and international acquisitions in China
context. It is possible that the assumption was invalid that the information asymmetry could be
more serious a problem for global acquisitions than for domestic acquisitions. China is a country
with diverse institutional, economic, and cultural environments. A province in China often has its
own specific policies promoting its economic and social development. Different provinces all try to
take advantage of their natural resources, locations, and talents. Such diversity within a country is
often described as no smaller than those between Germany and Spain [55]. Consequently, the
within-China difference makes the media exposure’s effect in reducing information asymmetry for
0.61
9.63 11.38
26.39
0.00
5.00
10.00
15.00
20.00
25.00
30.00
no yes
Media Exposure
Cross Border: No
Cross Border: Yes
-2.75
7.26
11.38
24.39
-5.00
0.00
5.00
10.00
15.00
20.00
25.00
30.00
no yes
Media Exposure
Cross Border: No
Cross Border: Yes
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Archives of Business Research (ABR) Vol 8, Issue 12, December-2020
157
domestic Chinese deals as strong as for international deals. The “difference” in the effect caused by
media exposure became not significantly different.
Findings in this paper contribute to the literature of international business in a number of aspects.
First, through rigorous empirical tests, we found support for the attention-based view applied to
the context of studying the effect of media exposure to acquisition premium. In fact, a large number
of studies have investigated the question of “what are determinants of premium in M&As” [56].
According to our findings, decision makers of the Chinese investing companies are not as rational
as the efficient market theory predicts. Decision makers’ attention could be directed to the publicity
or fame of their companies. Thus, the attention-based view proves to be more relevant in this
context, but the efficient market theory could be over-simplified in the real-life decision making
context. Our study extends the attention-based view into the field of M&A.
Second, we contribute to the literature on media exposure in the acquisition processes by
identifying the different impacts on foreign and local transactions. Although the literature has long
identified the differences for the locations of targets, our study extends the understanding of local- specific factors to a non-traditional stakeholder, the media, with both theoretical and empirical
contributions.
Third, our study focuses on the very active investors in the current economy of the world, that is,
Chinese companies. The findings demonstrate that the Chinese companies possibly are not
investing rationally. Given the fact that Chinese companies are becoming more and more active in
the world, the empirical findings of this paper offer important understandings to the literature
[48].
This paper also has practical Implications which managers can learn from our results in different
ways. First, acquiring companies are recommended to remain silent from the media to avoid paying
high premium. Although we did not differentiate different types of media exposure, the overall
effect of media exposure has been found to be associated with high premium in the acquisitions.
Decision makers from the acquiring companies need to be aware of controlling their attention to
more meaningful aspects relevant to their deals, rather the publicity of the deals.
Second, our findings can recommend leaders of the target companies differently because they
could actually gain higher premium if the transactions at hand are reported by the commercial
media. The media exposure makes the deal publicly known, making the acquiring companies’
leaders’ ego to function. These leaders could possibly become willing to pay high premium.
Third, the two aspects are especially important for Chinese companies investing globally. Global
acquisitions, if reported by the media, could witness even higher premium. Even though the effect
was not statistically significant, the actual difference could be about 6 percent, leading to sound
practical significance [57].
Like all empirical studies, this paper also has a few limitations, calling for future research to
improve incrementally. First, our data cover only transactions involving G20 countries. These
transactions, though covering almost 90 percent of all transactions recorded by SDC, still do not
cover all of them. Given that G20 covers about 85 percent World GDP, and 80 percent world
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Shao, R., Wang, Y., Wang, H., Geng, Z., & Ma, L., (2020). Media Exposure and Acquisition Premium: Evidence from Chinese Investing Companies.
Archives of Business Research, 8(12). 142-161.
investment, we believe our sample could be generalized to the real world. However, it is still
possible that companies from some other countries may invest mainly in countries other than G20.
Future research can address this problem using a startling different context to test whether our
findings still hold and can be generalized.
Second, some extreme transactions existed in our dataset, making it necessary for us to conduct
multiple tests for robustness. A few dozens of transactions had extremely low premium (29 of them
had more than half discount). We believe that such transactions involved factors beyond the
domain of our study. Thus, we reported results using datasets including them and datasets
excluding them. Future research can possibly investigate the factors leading to the extremely low
premium, and test whether our findings still hold when such factors are included in analyses.
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