Topic
Analysis of the Relationship between Financial Performance and Goodwill of Chinese Public Company : Effectiveness of Premium Acquisition
Instruction
Write a proposal focusing on Effective of Premium Acquisition analyzing the relationship between Financial Performance and Goodwill specifically on Chinese Public Company.
Answer Preview
Financial performance and goodwill have been examined as indicators of acquisition effectiveness, although empirical evidence in the context of Chinese listed companies remains scarce. Yang et al. (2017) investigated the mergers and acquisition of Chinese listed companies between 1998 and 2015 to assess the impact of corporate liquidity. The study established that firms rich in cash are likely to acquire weaker firms in term cash instead of paying dividends to shareholders. The researchers established that, however, spending cash on acquiring poor performing counterparts often lead to underperformance after merger or acquisition. The researchers attribute the underperformance to low quality of governance, despite the ability of Chinese listed firms to generate a large amount of capital to make the premium acquisition (Guarigilia et al. (2011). Xiang et al. (2018) also underscored the role of ownership and governance as determinants of financial performance post-acquisition. Although the study focused on the acquisition of overseas companies by Chinese listed firms, the findings established that financial risk is the most important determinant of long-term performance of acquisition after the deal. The studies suggest that while Chinese firms have the financial ability to acquire local and international firms, the ability of the acquiring firm to manage financial risks is critical.
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