Common Institutional Ownership And M & A Performance

In the context of China’s gradually maturing capital market,institutional investors,as professional investors in the stock market,are gradually becoming the backbone within China’s stock market.At the same time,for the sake of risk diversification and return maximisation,more and more ordinary institutional investors choose to hold shares of several large listed companies in the same industry at the same time,thus forming a common institutional ownership.Compared to ordinary institutional investors,common institutional ownership has the characteristics of a "network",which seeks comprehensive returns on the portfolio of holdings in the investment process,and is at the centre of the network,able to play a role in information transfer and resource sharing,and more likely to play an important role in corporate governance.However,there is little research on common institutional ownership in the context of China’s emerging capital markets,with only a few studies focusing on its impact on financial decisions such as R&D innovation,investment efficiency and financialisation,and no consensus on its role in corporate governance.The role of co-ownership in M&A,an important decision in corporate financial management,has received little attention from scholars.As the most effective way for companies to integrate resources and promote industrial synergies,mergers and acquisitions(M&A)are becoming increasingly popular among companies.Practical experience shows that the number and scale of M&A by Chinese companies has been increasing year on year.However,due to the lack of adequate knowledge of the M&A project and the serious problem of principal agency within the company,most companies do not achieve the M&A goal of "making the company bigger,better and stronger",and the performance of the company after the M&A does not reach the expected level.The common institutional ownership,with its economies of scale and information advantages,has a greater willingness and ability to govern.So,can co-ownership improve M&A performance? What are the underlying mechanisms? These questions need to be examined.In order to explore the above issues,this paper takes the A-share listed companies in Shanghai and Shenzhen of China from 2010 to 2021 as the research sample,and based on the principal-agent theory,information asymmetry theory and cognitive bias theory,reveals the impact and internal mechanism of the ownership of joint institutions on the performance of mergers and acquisitions.The results show that: firstly,the ownership of joint institutions can significantly improve the performance of mergers and acquisitions.That is,compared with enterprises without joint institutional ownership,enterprises with joint ownership have higher M&A performance.This result supports the positive governance effect of the ownership of common institutions.After a series of robustness tests and endogenous tests such as quantile regression,cluster adjusted regression,sensitivity test,PSM test and instrumental variable test,the conclusion is still robust.Secondly,the intermediary mechanism test shows that the mutual institutional investors can play an important role in improving the performance of mergers and acquisitions by alleviating the agency problem and correcting the cognitive bias of the management.Finally,in the analysis of the heterogeneity of the nature of property rights and the degree of industry competition,it is found that only in non-state-owned enterprises and enterprises with high degree of industry competition,the ownership of joint institutions can significantly promote the performance of mergers and acquisitions.The research in this paper enriches the relevant literature in the field of influencing factors of corporate M&A performance in China’s capital market and the economic consequences of joint institutional ownership,and supplements the positive impact of joint institutional ownership on corporate governance.The conclusion of this paper is helpful for Chinese listed enterprises to make reasonable use of the exclusive advantages of the ownership of joint institutions,provide theoretical reference and guidance for enterprises to formulate M&A strategies,and provide scientific and reliable reference for relevant departments to formulate reasonable M&A supervision and guidance policies.It has certain theoretical and practical significance.