Does R&D expenditure explain the stock market reaction to M&As? Evidence from the Chinese A-share market

We explore the impact of acquiring and acquired firms’ R&D expenditure on the market reaction to M&As. Using a sample of 9 739 Chinese M&A deals announced between 2009 and 2017, we find that acquired firms spending more on R&D expenditure react negatively to M&As, while acquiring firms with high R&D expenditure react positively to M&As. We further discuss the impact of R&D on market reactions when acquiring firms pay an offer premium, and we find that the premium leads acquired firms to react positively to M&As but results in negative market reactions to acquiring firms. Our results hold after we conduct robustness tests.