A Study On Managerial Power,Cash Holdings And M&A Performance Of The Acquirer

Merger and Acquisition,as a useful tool to improve competitiveness,have been one of the most important economic activities of companies.Five waves of M&A with different characteristics have taken place in western countries so far,however,findings from a great amount of western empirical studies show that most of the M&A activities resulted in negative performance.Now M&A activities grow dramatically in China,both in the amount and scale.Therefore,a study on M&A performance of Chinese companies and its influencing factors is of great significance.Through literature review and theory analysis,based on the principal-agent theory,free cash flow hypothesis,this thesis studies the acquirers' performance before and after the M&A activities and the impact of managerial power and cash holdings on the M&A performance.This thesis is to study the acquirers' M&A performance and its influencing factors,guide the companies to realize the impact of senior executives and cash holdings of the companies on M&A performance,and finally prompt the companies to strengthen its supervision on the senior executives and to improve its cash management ability so that the M&A performance could be improved.This thesis will take those acquirers listed in Shanghai Stock Exchange and Shenzhen Stock Exchange as the research subjects which implemented M&A in 2011.99 sample companies are selected according to a certain requirements.The board chairman also being CEO,the number of directors in the board,senior executive compensation,the tenure of CEO and the equity concentration are five dimensions taken into consideration to calculate the managerial power with the method of factor analysis.The cash holdings level will be measured by the ratio of excessive cash holdings to total asset.This thesis will also employ research methods in accounting to calculate M&A performance,and a variety of index will be selected from four dimensions: solvency,development ability,operational ability and profitability.With factor analysis method,we can get the overall scores of the acquirers' performance each year before and after M&A,and then scrutinize the performance changes resulted from the M&A.The M&A performance can be accessible by taking away the performance scores of the last year before the M&A from the average performance scores of the first three years after the M&A.With descriptive statistical analysis,significance test,correlative analysis and multivariate regression analysis and other statistical methods,this thesis tries to find out how managerial power and cash holdings level will affect M&A performance.The statistic outcome shows that average M&A performance is negative,about 37% of acquirers' M&A performance is positive and the others' is negative.It also demonstrates that managerial power and cash holdings level have a negative correlation relationship with M&A performance.Therefore,we suggest that all companies should establish a perfect internal control system,particularly strengthen its control on M&A activities.Companies should also enhance the supervision of the board of directors on senior executives and set up proper performance appraisal and incentive mechanism for the senior executives.As for the cash holdings level,cash policies should be established to ensure that a reasonable amount of cash is kept in the companies.