Private Benefits Of Control Right And The Enterprise Choice Of Payment Method In M&A

Mergers and acquisitions (M&A) is an important method to enhance the corporate value, achieve the industry consolidation and improve the competitiveness. The choice of payment method plays a key role for the success of M&A transactions as an important part of M&A decision-making. Domestic and foreign scholars’research of the affecting factors for the choice of payment method in M&A focusing on the controlling acquirer shareholding structure, financial position and both asymmetric information of M&A, ignore the motive that the controlling acquirer shareholders grab private benefits by hollowing out minority shareholders. By this perspective, this paper use normative and empirical method to explore the relationship between the behavior that the controlling acquirer shareholders protect the private benefits of control right and the choice of payment method in M&A.First of all, we do a meta-analysis of a standard study on the related basic theory of this paper, the affecting factors for the choice of payment method and China’s2004-2012data of the choice of payment method in M&A. The study finds:(1) With the mergers and acquisitions of listed companies increasingly active, the frequency of stock and mixed payment gradually increase as the payment methods in M&A. But the cash-based payment method is still showing a single development trend.(2)The shareholding structure of both sides, financial condition, managerial ownership and the relative size of the transaction will affect the controlling acquirer shareholders’choice of payment method. And one of the important determinant is the behavior motivation of the controlling acquirer shareholders. The controlling shareholders of listed companies often apply some self-serving behavior (transfer the company’s assets, implement related party transactions, etc.) to hollowing out the interests of the minority shareholders through its controlling position on the board of directors and management. So this paper considered that the important motivation for the controlling acquirer shareholders implementing the acquisition is to grab private benefits.Then, this paper builds a frame model about the choice of payment method in M&A from the viewing angle that the controlling acquirer shareholders do not always maintain their control over the damage, and used ordinal logistic regression model to do an empirical analysis about1793cases of M&A sample date which has been listed in Shanghai and Shenzhen stock markets from2006to2012.The results show that:(1)There is a non-linear correlation between the controlling acquirer shareholder and the choice of payment method in related party acquisitions, and it shows a tendency emptied of minority shareholders. In the condition, the controlling acquirer shareholders less consider private benefits threat or corporate debt financing threat, but the managers of the target company are more likely to stay on.(2)While in non-related acquisitions, the controlling acquirer shareholders incline to opt for cash payment in order to prevent the private benefits of control right.According to the research findings, the paper considers that we can remove the barriers of the single cash-based payment from this five aspects:the current structure of listed companies in China, the strengthen supervision of external creditors, the establishment of diversified financing channels for enterprises, governments adopt appropriate policies and the improvement of M&A relevant laws or regulations for promoting the development of the diversification of M&A payment method in our country. It can fully suppress the controlling acquirer shareholders from implementing self-interest M&A and effectively protect the interests of minority shareholders. In addition, the research findings provide theoretical and practical basis for the payment of the acquisition of diversification...