Equity overvaluation, insider trading activity, and M&A premium: Evidence from China

Based on catering theory and M & A arbitrage theory, this paper focuses on the motivation and economic consequences of high premium M & A in China's capital market. The main research conclusions are as follows: First, the more equity overvaluation, the higher the merger premium and the short-term excess market return. Second, the more insider trading behaviour after equity overvaluation, the higher the merger premium and the short-term excess market return. Third, the greater the short-selling pressure after the equity overvaluation, the lower the merger pre-mium and the weaker the short-term excess market return. Finally, this paper studies the eco-nomic consequences of M & A after equity overvaluation, and finds that M & A driven by equity overvaluation can only improve M & A performance in the current year, but cannot achieve long-term synergies. Based on the theory of M & A arbitrage, this paper studies the explanation mechanism of equity overvaluation to high-premium M & A in China's capital market, provides new evidence for executive's agency behaviour in M & A. This paper has important policy im-plications for the healthy development of M & A in the current emerging capital market.