Anecdotal observations show a few tendencies: 1) volume and sum of transactions increase over time. Figure.1shows amounts of money involved in that cross-border mergers and acquisitions of Chinese enterprises. Although the amounts of money involved vary over the years, but the trend is going up. 2) The purchasing method extended from cash offer into various kinds of payments, such as leveraged acquisitions and swap of equity shares. For example, TCL used the methods of asset injection and shares swap in its acquisition of Thompson of France. 3) Although the state-owned corporations dominate in big cross-border M&A deals, collectedly owned and private enterprises also become active in recent years. 4) The industries covered extended from domestically monopolized industries such as energy, chemicals to manufacturing industry in general.

  3. Literature Review

There is a vast literature on both domestic and cross-border mergers and acquisitions, mostly based on the experiences from developed countries. There are a few Chinese scholars have studied mergers and acquisitions casein domestic markets. For example, Feng and Wu (2001), using accounting data and factor analysis, formulate an overall evaluation function of corporate performance. They do not find significant change in firm performance in the year of M&A, but the performance improves in the year after and falls back in the third year. Zhu and Wang (2002) analyze improvement of return on equity (ROE) and returns on assets (ROA) for both acquirer and target companies in 67 mergers and acquisitions cases in 1998. Zhang (2003), using event study method and accounting an alytical method, analyzes the mergers, acquisitions and reorganizations of Chinese publicly listed companies. He found that mergers, acquisitions and reorganizations add value to the target company, but had a negative influence upon shareholders’ income and financial performance in the acquiring company. Jia (2003) reports a reverse U shape relationship exists between performance of acquiring companies and their previous acquisition experience. We do not find empirical study on cross-border mergers and acquisitions of Chinese companies. In the following section,we are going to develop a few hypotheses based on the prevailing theories on possible factors that influence the performance of cross-border M&A cases.

  4.Hypotheses Development

The outcomes of cross-border M&A depends at least on 2 broad factors. First of all, it depends on external environment, such as economic growth and degree of competition at home country, changes of political and cultural environment of host country and so on. Secondly, it depends on resources and capability of the acquiring company.It is the latter that we are going to focus on. A few hypotheses therefore are developed to reflect the relations between acquiring firm characteristics and performance of cross-border M&A.

4.1 Pre-Acquisitions Performance of Acquiring Firms

Allocation of control rights and possible synergy are often used to explain pre-acquisition performance and acquisition behavior. They are also used to explain post-acquisition performance for both acquiring and target firms.Weston et al. (1990) proposes that synergy effect is one of the main sources in which acquisition adds value, which means economic efficiency can improve after mergers of firms with different management capabilities. A relatively efficient bidder purchases a less efficient target firm and increases the value of the merged firm through improving target firm’s effectiveness.

From target firm perspective, market for corporate control theory argues that it is the difference between a company’s market value and its actual value that determines whether a firm will be acquired. Moreover, the difference of management efficiency between the acquiring firm and the target firm determines the target company's post-acquisition performance. From the acquiring firm s viewpoint, market for corporate control theory predicts that pre-acquisition performance of the acquitting firm is positively related to its acquisition performance.For example, Lang et al. (1989) found that in tender offers, Tobin Q value of acquiring firms and shareholders’interests are positively related. Servaes (1991) found both acquirer’s and acquired company’s shareholders gainsare positively associated with the Tobin Q value of the acquirer. In these studies, Tobin s Q, defined as the market value of a company pided by its replacement cost, is used as an indicator of a company s pre-acquisition performance and management capacity. Hereby we develop the following hypothesis: