Stock market liberalisation and acquisition outcomes: Evidence from a natural experiment

Taking the Shanghai/Shenzhen-Hong Kong stock connect policy as a natural experiment, we use a difference-in-differences approach to investigate how stock market liberalisation affects M&A outcomes. Employing a sample of Chinese listed firms from 2011 to 2020, we find that the stock market liberalisation leads to more positive M&A announcement returns. The positive effect on M&A announcement returns is the result of increased investor sentiment after market liberalisation. It is the investor sentiment mechanism through which stock market liberalisation has effects on M&A short-term returns. Further analysis indicates that stock market liberalisation does not impose positive effects on long-term M&A outcomes. We do not find evidence that M&As initiated by connected firms to be more value-added.