The Influence Of Board Informal Hierarchy On Enterprise Mergers And Acquisitions

As one of the most important investment decisions and investment behaviors of companies,mergers and acquisitions are an important path for companies to expand their scale,change their operating boundaries,and achieve industrial integration.At the same time,at the macro level,mergers and acquisitions play the role of industrial structure adjustment and resource re-allocation,and are an important part of the high-quality development of economy.In recent years,in practice,corporate mergers and acquisitions have been relatively active.From the perspective of M&A motivation theory,the fundamental motivation for enterprises to make M&A decisions is to realize synergy value,realize economies of scale and scope,and improve operating efficiency and management efficiency.However,behind the active M&A transactions,there are many low-efficiency M&A cases.Due to problems such as poor selection of M&A target companies,high premium payments,and failure of M&A integration,mergers and acquisitions have not achieved good economic results.Based on the above background,exploring the factors affecting and restricting corporate mergers and acquisitions and finding ways to improve the efficiency of corporate mergers and acquisitions is an important topic worth exploring in both academic research and corporate mergers and acquisitions practices.As a strategic decision-making body and the core of corporate governance,the internal operation mechanism of the board of directors is bound to have a far-reaching impact on corporate mergers and acquisitions.Sociological theory believes that any group decision-making will be affected by the hierarchy,which can be either a formal hierarchy or an informal hierarchy.The decision-making form of the board of directors is a meeting decision,and the content of the decision is summary and vague,and it is difficult to effectively guide it through a formal coordination mechanism.Under this institutional environment,the informal hierarchy will play a more prominent role in the board of directors’ decision-making.The informal hierarchy of the board of directors is an implicit and informal hierarchical order formed based on the amount of social capital and prestige status of directors(He and Huang,2011).According to the relationship contract theory,informal institutional relationships established based on trust and respect are more likely to produce supervision and coordination.The board informal hierarchy provides the board of directors with an implicit mechanism for orderly exchanges and cooperation,enhances the board’s resource integration capabilities and communication effects,so as to enhance the board’s decision-making efficiency and supervisory effectiveness.Therefore,from a theoretical point of view,the board informal hierarchy can influence corporate mergers and acquisitions.Then,can the board informal hierarchy significantly affect the corporate merger and acquisition decision,merger and acquisition pricing,and merger and acquisition performance? What is the mechanism behind it? What are the influencing factors?In order to answer the above questions,based on the three important stages of merger and acquisition process ‘M&A target enterprise selection-M&A transaction pricing-M&A value realization’,this thesis studies the impact,mechanism and influencing factors of the board informal hierarchy on mergers and acquisitions decision-making,mergers and acquisitions pricing and mergers and acquisitions performance.Finally,a complete theoretical framework of the impact of the board informal hierarchy on mergers and acquisitions is established.This framework clarifies the influence mechanism of the board informal hierarchy on the realization of the synergistic value of corporate mergers and acquisitions from the perspective of the M&A process,and proposes an information and resource integration mechanism and a management responsibility supervision mechanism of the board informal hierarchy in corporate mergers and acquisitions.In addition,this thesis also explores the differences in the impact of the board informal hierarchy on mergers and acquisitions in companies with different levels of environmental uncertainty,property rights,equity concentration,CEO informal level positions,and chairman informal level positions.The research in this thesis is based on a new perspective to understand the influence of the structural characteristics of the board of directors on mergers and acquisitions from the micro dynamic interaction level.It is a useful exploration to promote the extension of the board of directors research to the dynamic interaction process of members.At the same time,the research has reference significance for enterprises to strengthen the board of directors construction,improve the decision-making coordination mechanism of the board of directors,and realize the synergy value of corporate mergers and acquisitions.This thesis selects the mergers and acquisitions of A-share listed companies from2008 to 2019 as the research sample,and studies the influence of the informal hierarchy of the board of directors on corporate mergers and acquisitions by constructing an empirical model.The main findings are:First,a clear board informal hierarchy improves the decision efficiency of corporate mergers and acquisitions.On the one hand,the board informal hierarchy reduces the possibility of enterprises making inefficient M&A decisions.This is because in the selection stage of M&A target enterprises,the clear board informal hierarchy reduces invalid M&A projects and reduces the self-interest M&A projects of the management.On the other hand,the clearer the board informal hierarchy,the better the market response to the M&A decisions made by enterprises,and the higher the cumulative excess return in the window period of the M&A announcement date.It can be found that when a clear informal hierarchical structure is formed within the board of directors,the M&A decisions making are characterized by ‘small quantity but high quality’,which improves the efficiency of M&A decisions to a certain extent.The role of the board informal hierarchy in improving the efficiency of M&A decision-making is more obvious in enterprises with high environmental uncertainty and dispersed ownership structure.Compared with the formal power hierarchy,it is found that the formal power hierarchy increases the tendency of enterprise M&A,but the M&A decision-making has not achieved a significant positive market response.In addition,although the informal hierarchy of independent directors has no significant substantive impact on the tendency of M&A,it can bring significant positive short-term wealth effect to the M&A decisions made by enterprises.Second,a clear board informal hierarchy reduces the unreasonable Acquisition Premium and effectively inhibits the emergence of goodwill bubbles.In the practice of mergers and acquisitions,the outstanding problems in the pricing stage of mergers and acquisitions are manifested as high premiums,which seriously hinder the realization of the synergistic value of corporate mergers and acquisitions.After focusing on this issue in the mergers and acquisitions pricing stage,this thesis found that the clearer the board informal hierarchy,the lower the unreasonable premium of corporate mergers and acquisitions.The mechanism test finds that restraining the overconfidence of the corporate management and reducing the information asymmetry in the mergers and acquisitions activities are the two ways that the board informal hierarchy affects the corporate M&A pricing.This thesis also finds that in companies of state-owned enterprises and CEO at the highest informal level,the negative influence of the board informal hierarchy on the unreasonable premium of corporate mergers and acquisitions has been weakened.By introducing the formal power level for comparative analysis,this thesis finds that the formal power hierarchy brings a higher M&A premium.In addition,due to the complexity of M&A pricing,only from the perspective of independent directors,their informal hierarchical structure has not significantly affected the premium of M&A.Third,a clear board informal hierarchy increases the performance of corporate mergers and acquisitions.The M&A performance comes from synergy effect,and it is the manifestation of effective integration after mergers and acquisitions.In the aforementioned phases of M&A decision-making and M&A pricing,a clear board informal hierarchy has played a positive role.From this perspective,the informal hierarchy of the board can positively influence companies to achieve the synergistic value of mergers and acquisitions.The research in this thesis finds that the board informal hierarchy increases the integration effect of corporate mergers and acquisitions and enhances the realization of the synergistic value of corporate mergers and acquisitions.The mechanism test finds that the board informal hierarchy improves the performance of mergers and acquisitions through the two paths of reducing management agency costs and reducing the uncertainty of mergers and acquisitions,which verifies the information and resource integration effects and managers responsibility supervision effect of the board informal hierarchy in corporate mergers and acquisitions.This thesis also finds that in companies of state-owned enterprises and the chairman at the highest informal level,the board informal hierarchy has a more obvious effect of improving the performance of corporate mergers and acquisitions.The formal power hierarchy of the board of directors has a negative impact on the long-term M&A performance.In addition,when there is a clear informal hierarchy within the independent director team,it can promote mergers and acquisitions to achieve better long-term economic results.Therefore,the board informal hierarchy can improve the efficiency of M&A decision-making and make M&A pricing more reasonable,which not only increases the short-term excess income of corporate M&A,but also brings better long-term M&A performance in the long run.The research innovation of this thesis is mainly reflected in the following aspects:First,based on the perspective of dynamic interaction of the board of directors,this thesis expands the research on the board structure and mergers and acquisitions.Early studies about board structure regarded the members of the board of directors as individuals with homogeneous influence,ignoring the status differences brought by the social capital and social reputation of the members of the board of directors.Following the reality of the differences in ability,social capital and prestige status among directors,based on the relationship contract theory,this thesis breaks through the static perspective of the board of directors,studies the impact of informal hierarchy on enterprise mergers and acquisitions from the perspective of dynamic interaction of board members,and promotes the research on the impact of board structure on enterprise mergers and acquisitions behavior.For the first time,this paper proposes that board informal hierarchy can reduce managers’ self-interested M&A projects,thereby improving the efficiency of M&A decision-making.This paper discusses the influence of board informal hierarchy on the M&A premium,studies the influence of the formal power level and informal level of the board on M&A,and verifies the influence of the informal level of independent directors on M&A.Second,this thesis puts forward the information and resource integration effect and managers responsibility supervision effect of the board informal hierarchy in corporate mergers and acquisitions.From the micro-level perspective of individual directors,this thesis systematically studies the influence of the informal hierarchy formed by differences in the number of part-time director positions and political connections on corporate M&A decisions,M&A pricing,and M&A performance.At the same time,this thesis explores the mechanism from the two paths of information and resource integration and supervisory responsibility supervision,effectively revealing the ‘black box’ of the influence of the board informal hierarchy on corporate mergers and acquisitions,and enriching the research paradigm of ‘structure-behavior-result’ of the board of directors.Third,this thesis constructs a theoretical framework for the influence of the board informal hierarchy on corporate mergers and acquisitions.Based on M&A theory,information asymmetry theory,resource dependence theory,and relational contract theory,considering the complete corporate M&A process,follows the nature of the logical relationship between various stages,this thesis selects corporate M&A decision-making,corporate M&A pricing,and corporate M&A performance,and constructs a complete theoretical framework for the informal hierarchy of the board of directors and corporate mergers and acquisitions.This theoretical framework clarifies the path that the board informal hierarchy promotes the realization of the synergistic value of corporate mergers and acquisitions from the perspective of the merger process.At the same time,according to the theoretical framework,this thesis summarizes the whole process governance system in which the board informal hierarchy acts on the realization of M&A performance.