Why financial performance of the technology-based merger and acquisition is counterproductive to its market reaction: A study based on the listed Chinese pharmaceutical companies

Recently, China's pharmaceutical industry is entering a period of rapid integration. The intrinsic nature of the pharmaceutical industry determines that technology and innovation is its main reason of merger and acquisition (M&A). Using a sample includes the listed Chinese pharmaceutical companies undertaking M&A in 2012, the paper finds that most of the companies announce that technology and patent are the main factors for them to acquire other companies. But such technology-based or innovation-based M&A (TM&A) only has a fleeting significant impact on profit growth and do not bring sustainable financial performance improvement; while it has a positive market reaction to the acquirers and makes their stock price improved significantly. Besides the factors about companies operation and strategy, the paper suggests that so called “market value management” of Chinese companies may be an important reason that financial performance and market reaction of the TM&A shows exactly the opposite.