Corporate Governance, Mergers And Acquisitions, And Performance Studies

Along with the alteration of enterprises from state-owned companies to corporations, corporate governance has become one of the hottest topics in theories of corporation and practical research in China since 1990's. The reason for this is that in modern corporations the separation of ownership and control right incurs agency costs which will degrade the corporation. As a result how to reduce agency costs attracts lots of attention. And corporate governance is just about a system focusing on the debasement of agency costs with the balance of interest groups.Corporate governance can be divided into interior and exterior governance. Interior governance is the supervisory and balancing system established among interior interest groups, such as shareholders, administrators, employees, etc. This governance consists of some inner organizations like general meeting, board committees, regulatory commission etc. In general meetings directors will be elected and entrusted by shareholders to work together as board committees to take charge of decision-making. Meanwhile board committees will hire professional managers as executive officers to preside over the daily business of the enterprise. Some proper Incentive mechanism will be designed to help managers work hard. In addition board committees and regulatory commission will supervise managers to avoid the misuse of authority.Exterior governance is the supervisory and balancing system established by external interest groups, such as external investors, creditors and institutional investors. It consists of the pressure of the competition in the market, developed stock market, reputation effect in manager market, creditors'actions, government supervision and governance effect of mergers and acquisitions. As an exterior governance system, merger has substituting and warning effects on interior governance. The nonstandard and incomplete alteration of Chinese enterprises rebates the impact of interior governance. So it's crucial to exert merger's influence in corporate governance and perfect the performance of corporate governance.On that base, the article established a logical chain, that is the characteristic of modern corporations is the separation of ownership and control right; agency costs are incurred; corporate governance is a system focusing on the debasement of agency costs; corporate governance can be divided into interior and exterior governance; merger is a exterior governance system; merger reduces agency costs of the target corporation; the performance of the target corporation is improved; investors gain transnormal profit; whether the conclusion is consistent with the data in China; what kind of impact the deeper reform will have. Aiming at supporting the point of view that merger can be used to perfect corporate governance the article based on this logical chain and researches the relationship among corporate governance, merger and performance. How to use merger to improve corporate governance and performance is a worthy question of discussion, especially after Share Splitting Reform. That's where the practical meaning of the article lies.On the base of analyzing the interrelated theories on corporate governance and merger, the article focuses on finding solutions to three problems as follows: 1. How to explain the governance effect of merger in theory? Is there something wrong with merger as an exterior governance system? How does the structure of interior governance influence merger? 2 Theoretically speaking, merger improves corporate governance and company's performance, and creates transnormal profit for investors. Can this theory be proved by the merger practice of corporations? If merger does bring transnormal profit, is merger the sole resource? 3. How to make use of governance effect of merger to perfect governance of the corporation? Are there any changes of corporate system, merger and performance after Share Splitting Reform? What kind of significance do these changes have to governmental supervision? What should government do to perfect its supervision over corporate governance and merger in new conditions?To solve all the problems, the article is divided into six chapters. Chapter one identifies the content and focus of the article. Chapter two analyses corporate governance theoretically, judges of related theories and provides academic fundament. Chapter three analyses another key word-merger-in theory, talks over hypotheses and theories about merger issued by economists from different point of views. It can be found that economists offered much more explanations except that merger will improve corporate governance. Chapter four clarifies the relationship between merger and governance through theoretical research. According to the data of merger in stock markets in China, chapter five verifies the relationship between merger and performance by case study, and brings forward rent hypotheses to explain the origin of transnormal profit. Chapter six discusses new features and relationship which may occur among corporate governance, merger and performance since Share Splitting Reform in May, 2005. Based on that, chapter six gives some advice to corporate governance and supervision of merger in new environment and points out some noticeable problems.The author concluded some viewpoints through normative study and empirical study:1 The corporation conduct has direct effect on corporation performance, for example, mergers and acquisition, research and exploitation and so on. The Factors which influence the corporation conduct are divided into market structure and structure of corporate governance. The market structure-conduct- performance is the pattern of SCP in the theory of industrial organization. The article defines the corporate governance- conduct- performance into GCP.2 Under the modern corporation system, the balanceable benefit scheme should be adopted, if maximizing profit decreases others'benefit.3 With the development of information technology, the rise of internet and the perfect law system, transaction cost is reducing. The corporation is"cutting"and"summing up to core"through making up non-core operation to fictitious organization and network organization.4 There is limit in the inside corporate governance and the outside corporate governance. So the effective corporate governance is the result of comprehensive governance.5 the managing group in state-owned enterprise is prone to oppose to be integrated. The organization investors go in for the mergers and acquisitions that are beneficial to stock appreciation. Individual investors like"Free Ride". The managing group's attitude toward the mergers and acquisitions is influenced by reward structure.6 Market adjusting research on the mergers and acquisitions proved that the shareholders of listed companies in china gain abnormal return within [-40, 40].7 If the excess income is defined the rent of the mergers and acquisitions, and it comes from conformity rent, governance rent and information rent. In china, the information rent take up a larger part in the rent of the mergers and acquisitions before announcement of the mergers and acquisitions.8 The reform of non-tradable shares has far-reaching effect on listed companies in china. At the back times of the reform of non-tradable shares, corporate governance will be normative, corporation performance will be improved, and shareholders will gain system excessive price.9 At the back times of the reform of non-tradable shares, there are many new problems in the corporate governance and the mergers and acquisitions. Therefore it should strengthen government surveillance and building surveillance system. The government surveillance should follow three principles, which are equal benefit, non- symmetry surveillance and separate surveillance.10 The complete shares currency provides the foreign capital purchasing Chinese listed companies with convenient channel. So the government should strengthen surveillance on the foreign capital"cutting down"through the mergers and acquisitions.The innovations are as follows:1 The author brings forward GCP- the corporate governance- conduct- performance. 2 There is limit in the inside corporate governance and the outside corporate governance. So the effective corporate governance is the result of comprehensive governance.3 The author brings forward the assumption of the rent of the mergers and acquisitions, which explains the sources of the rent of the mergers and acquisitions. The author considers the excess income coming from conformity rent, governance rent and information rent.4 The author brings forward that the reform of non-tradable shares brings shareholders with system excessive price.5 The author brings forward that the government surveillance should follow three principles, which are equal benefit, non- symmetry surveillance and separate surveillance at the back times of the reform of non-tradable shares.6 The author brings forward that it should carry out punishment compensation system in the litigation which investors who hold few shares bring accusations against listed companies or big shareholders.