A Study On The Relationship Between Ownership Concentration, Managerial Overconfidence And Decision Of Enterprise Merger And Acquisition

For a century, the mergers and acquisitions of capital market as a common phenomenon in the modern economic history, exist in the western developed countries generally. The merger not only realized the rapid expansion of the scale of the enterprise, but also accelerated the industrial upgrading and capital structure optimization. The merger has greatly promoted the economic development of the western countries, and it has a profound impact on the formation of the international economic pattern. For Chinese enterprises which are in the transition economy and emerging markets pay more attention to mergers and acquisitions that make them bigger and stronger and improve efficiency. With the continuous development of the economy, Chinese government build the capital market very well, improve the relevant laws and regulations of mergers and acquisitions, and continue to promote the arrival of the era of stock ownership. Chinese enterprises have been a wave of mergers and acquisitions, not only a large number of mergers and acquisitions between domestic enterprises, but also the domestic enterprises mergers foreign enterprises commonly. For the reason of enterprise merger and acquisition, under the premise of the rational people hypothesis, there are many theoretical analysis, but they also can not fully explain the reasons for the wave of mergers and acquisitions. While behavioral finance, which denies the rational person hypothesis, believes that management is not completely rational, but not rational or limit. These nonrational factors seriously affect the behaviors of management, and the management overconfidence is the main reason for the merger and acquisition. Driven by foreign related research, domestic scholars have begun to study the role of management overconfidence in the decision-making of corporate mergers and acquisitions. There are many literatures, but most of them selected a sample of empirical analysis in the capital market of China. Although the results are the same, but it is admitted that the measure of the management overconfidence is a difficult point, a variety of indicators being used, but not forming a consensus to serve the public. This paper based on the existing literature research gets date from the four aspects. Then using principal component analysis to construct the comprehensive measure index to determine whether the management is overconfident, empirical test the relationship between ownership concentration, managerial overconfidence and decision-making of enterprise mergers and acquisitions in Chinese capital market in 2010~2012 years. Firstly, the theoretical hypothesis is put forward by using the method of normative research, and the conclusion is drawn by logistic regression analysis:(1) there is a significant positive correlation between management overconfidence and enterprise mergers and acquisitions.(2)the ownership concentration can significantly affect the positive correlation between management overconfidence and enterprise mergers and acquisitions. The lower the ownership concentration, the stronger the positive correlation between the managerial over confidence and the decision making of enterprise mergers and acquisitions; The higher the ownership concentration, the weaker the positive correlation between management overconfidence and enterprise mergers and acquisitions decision. Therefore, the improvement of the ownership concentration can weaken the merger and acquisition decision driven by the management overconfidence and protect the interests of shareholders in a certain extent.The innovation points:(1) based on the existing literatures to construct a comprehensive index to measure the degree of the management overconfidence. In behavioral finance, it is difficult to measure the level of the management overconfidence. and the scholars try to use different methods to measure. This paper selects data from the most common four aspects to construct a comprehensive index using the principal component analysis method. In theory, it is more accurate and reliable, and it is more robust to the conclusion of empirical analysis.(2)to discuss whether the ownership concentration can weaken the enterprise merger and acquisition driven by the management overconfidence. Domestic Hui Lei and Chan Wu(2010) proposed and proved that the separation of chairman and general manager is beneficial to weak the correlation between managerial overconfidence and decision-making of enterprise mergers and acquisitions. In this paper, we discuss whether the increase of the ownership concentration can weak the relationship between managerial overconfidence and decision-making of enterprise mergers and acquisitions.(3) empirical analysis based on latest merger and acquisition data in China capital market. In this paper, we select the A shares dates as a sample in Shanghai and Shenzhen Stock Exchange in 2010~2012 years, and empirically test the relationship between the ownership concentration, management overconfidence and enterprise merger and acquisition decision.Policy significance of this paper: Company managements who are overconfidence always think that their behaviors can maximize the wealth of shareholders, but often make a wrong decision of mergers and acquisitions. Relevant regulatory agencies should strengthen the review of mergers and acquisitions of listing Corporation. They should require the main and side of the merger and acquisition to disclose more information, making the management more carefully treat to merger and acquisition decision, ang reducing irrational mergers and acquisitions, to protect the interests of shareholders of the company. At the same time, this paper puts forward and empirically confirms that the improvement of ownership concentration can weaken the relationship between managerial over- confidence and corporate mergers and acquisitions, so it also provides a realistic basis for the introduction of institutional investors in Chinese Listed Company.