The External Fairness Of Executive Compensation,Investor Sentiment And M&A Premium

In recent years,cases of high-premium mergers and acquisitions are very common.However,the performance of target enterprise after high-premium mergers and acquisitions is bad,which have damaged the enterprise value.Traditional Synergy Effect Theory cannot give a reasonable explanation for the above phenomenon.Therefore,based on the perspective of behavioral psychology,this paper studies the influence of external fairness of executive compensation on corporate M&A premium,so as to explore the effectiveness of compensation incentive in executives'decision-making of M&A premium.The relationship between external fairness of executive compensation and M&A premium is to be investigated by selecting merger data from 2009 to 2017 of the listed company where the compensation of executive if lower than expectation.The relationship between external compensation equity and M&A premium is studied by combining normative research with empirical research,so as to verify the effectiveness of the compensation incentive when the executive compensation is lower than the expected compensation,that is,whether the improvement of external compensation fairness can alleviate the agency problem and reduce the M&A premium.In addition,since the decision-making process of senior executives is not independent of the external market environment,irrational investors will have an impact on the premium decision-making of senior executives in the case of unfair remuneration,which may weaken the effectiveness of compensation incentive.Therefore,this paper puts investor sentiment into the research framework in order to find out the effect of investor sentiment on external compensation equity and M&A premium.Finally,since executives are subjects of external compensation equity and decision-making in enterprise M&A premium,there may be differences in the cognition and response to external compensation equity.Therefore,this paper conducts grouping tests according to the background characteristics of the senior management team(average educational level and average age).Through theoretical analysis and empirical test,this paper draws the following main conclusions:First,the external compensation equity of senior executives is negatively correlated with the M&A premium,that is,when the senior executives are in the situation of unfair external compensation,the compensation incentive is effective,which can alleviate the high M&A premium under the agency motivation.Second,investor sentiment can weaken the incentive effect brought by the improvement of salary equity.Third,grouping test found that there was a negative correlation between compensation equity and M&A premium in private enterprises,and investor sentiment could weaken the correlation between compensation equity and M&A premium,while the above relationship was not significant in state-owned enterprises.Fourth,when the average educational level of the executive team is high,the average educational level is low and the average age is low,there is a significant negative correlation between the executive's external salary equity and the M&A premium,and the moderating effect of investor sentiment is significant in both groups.When the average age of senior management team is higher,the above relationship is not significant.Based on the perspective of behavioral psychology,this paper studies the M&A premium,and puts forward a new perspective on the phenomenon of high premium in M&A and enterprise value destruction that cannot be fully explained by mainstream viewpoints such as the synergy theory of M&A.Through empirical research,this paper proves that there is a correlation between executives' external compensation equity and M&A premium.With the improvement of external compensation equity,M&A premium decreases.It shows that when the senior executives are in the situation of insufficient incentive,the compensation incentive can alleviate the agency problem and reduce the premium of merger and acquisition,which verifies the usefulness of the compensation incentive at this time.Finally,putting the compensation fairness,investor sentiment.and acquisition premium into the same analysis framework,this paper studies the effect of investor irrationality on the effect of compensation incentive.It further improves the decision-making system of M&A premium for executives with unfair external compensation,and at the same time in practice,it provides new ideas for the regulatory authorities to conduct multi-perspective and multi-market joint investigation from the perspective of investors' behavior in the capital market and micro-enterprises' behavior,and improve the M&A market,and then restrain the M&A premium.