Research On Inertia Of Corporate M&A Activities

Corporate M&A activities speed up during recent years,owing to not only the push of external factors,including capital market efficiency,technical revolution, and advantageous political environment,but also the drive of intemal factors, including the improvement of corporate management structure and the competency for capital operation.However,from the dynamic view,this paper expects that it is the inertia that has a significant push effect on corporate M&A.Therefore,the paper focuses on the strategic inertia of corporate M&A,discussing sources leading to inertia,factors affecting inertia,and also the effect of inertia on corporate valuation. The paper aims to find out the rule of inertia and make use of it to improve corporate management.M&A inertia is the trait that a corporation will follow its previous strategic mode and developing route in its later M&A activities,including both direction and momentum,when the external environment does not change a lot.M&A inertia is one of the organization's inherent attributes,existing in the whole process of corporate M&A development.The corporation will keep relative stability and strike a balance in its series of M&A activities in terms of industrial relatedness, geographical span,transaction scale,and transaction frequency,which leads to a distinct path-dependent M&A developing route.The paper discusses sources of M&A inertia.On one hand,the improvement of corporate M&A competencies will have a positive effect on its further activities,on the other hand,cognitive constrains can also serve as mechanisms leading to inertia. This paper integrates the above two explanations into organizational learning perspective.It is found that organizational bias toward exploitation,in stead of exploration will force the corporation take next move in related industry and familiar region according to previous pace and frequency,which leads to path-dependent M&A route.This paper examines the M&A developing process of our country's listed companies in manufacturing industry,and confirms the existence of M&A inertia.In this study,it is also found that the inertial modes are different among different corporations and even during different phases of the same corporation.The paper expects the difference as the result of corporate seeking more effective matching among its inertial mode,external environment,and the evolutionary phase it belongs to.Therefore,the paper discusses the influencing mechanisms of M&A inertia in terms of environment and corporate lifecycle.It is supposed that when external environment is relative stable,M&A inertia will help to improve operational efficiency,and in turn the original inertia will be strengthened.However,when changes happen,the rules for market competition will alter,which makes the original inertial mode unsuitable.Under this condition it is necessary to overcome original inertia and implement strategic change.Otherwise, the efficiency brought by inertia will cause great disaster.In terms of internal factors,when company is developing at certain phase of its lifecycle,M&A inertia will become more stable and be reinforced along with the increase of corporate age and scale.However,when the company evolves from one stage to the other in its lifecycle,its inertial mode has to be transferred according to the changing environment and corporate objective.Thus it will cause obvious decrease in inertia towards the original direction.Meanwhile,it is expected that good performance in past M&A activities will be positively associated with M&A inertia. In other word,if the corporation performed well during past activities guided by inertia,then the M&A inertia will be accumulated and strengthened.The paper examines the above expectations and provides reasonable explanations.Finally,this paper examines the valuation effect of M&A inertia.Through event study,it is found that the presence of M&A inertia affects how the market assesses a company's M&A activity,and the market responds more positively towards those companies who exhibit higher level of M&A inertia.Through case study,it can be seen how firms make use of M&A inertia to gain competitive advantage and realize rapid expansion.The findings of this research suggest that managers should accept the existence of M&A inertia,and take an active and effective control of it.It includes making the first M&A decision with great cautiousness,paying close attention to the change of external environment and corporate own evolution,striking a balance between the frequency and pace of M&A activities etc.,in order to make better use of M&A as an important and necessary growth strategy.