Will Cross-ownership Reduce Excess Goodwill?

In order to occupy an advantageous position in the increasingly competitive market and improve their competitiveness,more and more companies are choosing to grow and diversify through M&A activities to optimize the allocation of resources and increase the value of the company.However,China’s capital market is not well developed,investor protection is weak,the information environment is poor,and there is a large information gap between the M&A parties and the M&A targets.In addition,there is a great possibility for management to gain excess returns through M&A at a premium in order to satisfy personal interests.Therefore,corporate M&A decisions usually have difficulty in achieving the expected goals and bringing wealth to shareholders.Serious information asymmetry problems and management’s self-interest may often cause high premium M&A behavior,forming a large amount of unreasonable excess goodwill,which may easily lead to large-scale goodwill impairment,which not only affects company performance but also may bring potential financial risks to the entire capital market.How to curb the excess goodwill of M&A is an important step in promoting the sustainable and healthy development of China’s economy.Shareholders are the owners of enterprises and can decide on important decisions such as M&A decisions.As shareholders with a high percentage of shareholding,the influence of major shareholders on corporate governance is receiving increasing attention from the capital market.In recent years,a special type of shareholder,Crossownership,has attracted increasing attention from the capital market and academia,and research on the participation of Cross-ownership in corporate governance has been enriched.Cross-ownership refers to large shareholders who own shares of several listed companies in the same industry at the same time.Through the network relationship connection,Cross-ownership has unique information advantages,resource advantages and governance advantages,which can not only reduce the cost of information exchange and resource exchange between enterprises,but also effectively monitor the management behavior,and thus exert a stronger governance effect.Therefore,from the perspective of excess goodwill,this paper examines whether Cross-ownership can effectively use their advantages to reduce excess goodwill,and through which path Cross-ownership can play a governance role to curb excess goodwill.Based on the literature review,this paper relies on principal-agent theory,information asymmetry theory and social network theory to analyze the effect of Crossownership on excess goodwill,and put forward the research hypothesis.In order to test the hypothesis,this paper conducts regression analysis and tests on the research sample of A-share listed companies in Shanghai and Shenzhen from 2007 to 2019.This paper finds that Cross-ownership is effective in reducing excess goodwill,and that the inhibiting effect is more pronounced in listed companies with a large number of Crossownership.This finding still holds after several endogeneity tests and robustness tests.The mechanism of influence is examined and it is found that Cross-ownership can suppress excess goodwill through the monitoring effect and information effect.Further analysis shows that the higher the shareholding of Cross-ownership,the stronger the inhibiting effect of Cross-ownership on excess goodwill.The distinction between audit quality and industry competition in the external monitoring environment reveals that Cross-ownership are more effective in suppressing excess goodwill in domestic "top10" and highly competitive companies.Exploring the relationship between Crossownership and goodwill impairment,we find that Cross-ownership can effectively enhance the integration effect of M&A projects and thus reduce the likelihood of goodwill impairment.The findings of this paper affirm the positive role of Crossownership in corporate governance and not only enrich the research related to Crossownership governance from the perspective of M&A,but also point out the factors affecting the excess goodwill of M&A from the perspective of Cross-ownership.This paper gives policy recommendations for optimizing corporate M&A and improving M&A efficiency.