Institutional Environment, Agent Of The Ultimate Controller And Performance Of Mergers And Acquisitions

With the completion of the reform of non-tradable shares, mergers and acquisitions of listed companies by acquisition of equityincreased dramatically, which can optimize ownership structure and realize the resource integration.The study of the behavior and performance of mergers and acquisitions has become a hot spot in the field of corporate finance.As an important business activity for optimizing equity structure and integrating resource, mergers and acquisitions can not only play a role in optimizing the allocation of resources, but also improve the governance efficiency of the target company through the market of control, and thus enhance corporate performance. In addition, the institutional environment also plays a kind of governance effect in the company’s behavior, which forms two complementary mechanisms of governance together with the effects of mergers and acquisitions. Under the action of these two governance mechanisms, the performance of agency problems of ultimate controller in the acquisition isthe choice of whether to transfer the control and the change of tunneling extent. Therefore, based on the institutional background of China, this paper mainly studies the behavior and its economic consequences of ultimate controller in the process of mergers and acquisitions.This paper firstly reviews the theory of institutional economics, law and finance, ultimate controller agent and mergers and acquisitions motivation. Then we study the influence of these factors on the merger and acquisition behavior and performance by nested a variety of institutional variables and the ultimate controller characteristics variables into the merger and acquisition decision behavior of company. Finally, we make the conclusion, put forward some pertinent policy suggestions and the expectation of future research.The result suggests that:First,the degree of the separation of control rights from cash flow rights of the ultimate controllershas a significant negative correlation with the tendency of transferences of CorporateControl. There is a significant positive correlation between the local state-owned ownership and transferences of corporate control.Second, the degree of non-efficient investments after theM & A is significantlydecreasedthan the pre-merger,and it is more evident for the M & A transactions with transferences of corporateControl to decrease the degree of non-efficient investments than the ones without transferences of CorporateControl.The transfer of control reduces over-investment of free cash flow, and the intervention of local government reduces over-investment of free cash flow of local state-owned enterprises. Third,investor protection significantly reduced the degree of tunneling by the ultimate controller. Compared with a strong set of legal protection for investors, the degree of tunneling reduce much more significant for a weak set of legal protection for investors after M&A. This suggests that M&A transactions have the effect of improving corporate governance. This effect have a substitution relationship with investor protection.The transfer of control improves corporate governance, which significantly enhances corporate performance.Compared with the existing domestic and international literature, the main features and innovations of this paper are reflected in:Firstly,the combination of institutional environment factors of macro level and enterprise decision-making behavior of micro level and institutional environment governance mechanism and control market governance mechanismexpand the research framework of the existing literature.Secondly, in the existing literature,a large number of scholars had investigated the distortionofinvestment behavior and efficiencycaused byagency problemsof the ultimate control, but less literature focus on the corporate investment behavior and efficiencyin M & A scene.This paper,from the perspective of corporate investment efficiency,studiedthe effect of corporate governance by M & A on the investment behavior and efficiency,which make up for this missing.Thirdly, we investigated and confirmed that the agency problem of the ultimate controlleris an important factorthat influences the performance ofmerger and acquisition. The agency problem of the ultimate controllerpreventthe transfer of control, and the transfer of control can reduce over-investment and tunneling of the ultimate controller. The result provides a new theoretical perspectives and empirical evidence to the existingliterature.