Firm performance, asset acquisition and the method of controlling rights transfer: Evidence from the Chinese market

The transfer of controlling rights for a Chinese public company is either a free transfer or an agreed sale. We show that good-performing firms are more likely to be transferred to new owners for free while poor-performing firms are more likely to be sold via agreed sales. Furthermore, we find that demands for these poor-performing companies come from new owners who can subsequently engage in profitable asset acquisitions. In addition, firms that are transferred through agreed sales extract higher returns through subsequent asset acquisitions than firms that are tendered through free transfers.