A Study Of The Economic Consequences Of Corporate Mergers And Acquisitions Based On Managerial Overconfidence

With the rapid development of the economy,mergers and acquisitions are very active in China’s capital market,and more and more enterprises are achieving rapid expansion by merging and acquiring other enterprises.The implementation of M&A by enterprises allows them to rapidly expand their scale,improve their production efficiency,perfect their upstream and downstream industrial chains,and achieve the purpose of corporate synergy.Due to the rise of our economic market,companies are initiating mergers and acquisitions with increasing frequency and the time interval between mergers and acquisitions is becoming shorter.However,in many M&A events,the results of implementing the M&A are quite different from the expected goals.Studies have shown that the psychological characteristics of overconfident managers can lead to biased decision making.The question of how overconfident managers generally behave in M&A and what economic effects these behaviors have on the firm in actual M&A is still open for further research.This thesis takes Ruikang Pharmaceuticals as the case study,firstly,introduces the theoretical research results related to M&A and managerial overconfidence,introduces the current situation of the pharmaceutical industry and the profile of Ruikang Pharmaceuticals,compares the M&A process of Ruikang Pharmaceuticals according to the timeline,and analyzes the motivation of its M&A.Secondly,we analyze four aspects: management characteristics,deviations in corporate performance forecasts,managerial shareholdings,and historical performance to determine whether Ruikang’s managers are overconfident.Again,we analyze the impact of overconfidence on the M&A process from three aspects: M&A payment method,M&A financing method,and M&A premium.Finally,we investigate the impact of managerial overconfidence on the M&A process and the economic consequences of M&A in terms of market reaction,goodwill,financial risk,and profitability,and draw conclusions and make recommendations based on the case study.This thesis finds that the managers of Ruikang Medicine are overconfident;the overconfidence of Ruikang Medicine’s managers is manifested in cash-based payments,debt financing and high premiums for mergers and acquisitions.The market did not respond well to the M&A of Ruikang Pharmaceuticals and failed to stimulate the stock price significantly;the cash payment and debt financing made the solvency of the company decrease and the financial risk of the company increased;the premium price of the M&A generated a large amount of goodwill,which laid the risk of large goodwill impairment.Therefore,the existence of a company with overconfident managers implementing M&A may bring negative value impact to the company.Finally,the thesis summarizes the case study findings and makes targeted recommendations.