Research On Payment Model And Performance Of Mergers And Acquisitions

In the process of corporate merger and acquisition(M&A), not only does the selection of M&A payment model have a beariing on the success of M&A, but its restriction on the acquirer and the acquiered party has an impact on the corporate’s future performance. In reality, plenty of M&A failure cases are caused by inappropriate selection of M&A payment model. By constructing theoretical model, this paper studies the relation between the selection of M&A payment model of listed companies and M&A performance. Also, this paper makes a combined discussion of M&A payment model and Configration of control rights and studies the impact that M&A payment model has on acquirer’s performance from the perspective of control rights. The main work and innovation points are as follows:1.This paper constructs both the acquirer’s and the acquiered party’s unilateral concealed information model and obtains the separating equilibrium of both parties, thus identifying their performances. In order to get the intrinsic value of M&A both parites, we use stein(1992) corporate financing model for reference and find that acquirer’s incentive compatibility condition is that when the legal fees are high enough, there is a one to one correspondence between the acquirer’s signed contract and acquirer’s intrinsic value. The acquiered party’s incentive compatibility condition is that when the stocks charged are enough as the acquired party defaults in the valuation adjustment mechanism(VAM), there is a one to one correspondence between the the acquired party’s signed contract and the acquired party’s intrinsic value. The existence of equilibrium indicates that in the M&A process, we can identify the value of the acquirer and the acquired party through the type of contract they are willing to sign and thus the design of M&A payment contract is of great importance.2.This paper constructs both the acquirer’s and the acquiered party’s bilateral concealed information model and obtains the separating equilibrium of both parties, thus identifying their performances. This paper considers the acquirer’s and the acquiered party’s bilateral concealed information issue and constructs the acquirer’s and the acquiered party’s bilateral concealed information model. We find the incentive compatibility condition under the acquirer’s and the acquiered party’s bilateral concealed information is that when the legal fees are high enough and also, the stocks charged are enough as the acquired party defaults in the valuation adjustment mechanism(VAM), there is a one to one correspondence between both parties’ signed contracts and their intrinsic values. Moreover, this paper constructs both the acquirer’s and the acquiered party’s bilateral concealed information model with control rightsunder both the situations of certainty and uncertainty and obtains the separating equilibrium of both parties, thus identifying their performances. Considering control rights, by adding default penalty of the acquirer to VAM, this paper protects the interests of both parites and finds the incentive compatibility condition is that when the legal fees are high enough and the stocks charged are enough as either of M&A parties defaults in VAM, there is a one to one correspondence between both parties’ signed contracts and their intrinsic values.3.This paper constructs a systematic framework of influence factors in choosing the payment model, and figure out the key factors among those which influence the M&A payment model by qualitative and quantitative approach. We adopt Logistic and Tobit multivariable regress model based on the open M&A data of Chinese listed companies, the empirical results indicate that control rights are the most critical factor that affects the selection of listed companies’ payment model. The higher the level of control rights of a substantial shareholder of merger partyis, the more likely the acquirer tend to cash payment, by which to avoid dilution and transfer of the control rights.At the same time, the internal characteristic and transaction characteristics of the acquiring party also influence the payment method.4.This research analyzes the impact of M&A payment model and control rights level on the acquirer’s short-term performance by return and risk. Based on the M&A data, publicly traded stock data and financial data of the listed companies, this paper tests the short-term wealth effect of different M&A payment models from the perspective of the excess earnings gained from the short-term events window of M&A events and acquirer’s short-term performance combined with the stock price volatility impact. The empirical results indicate that the acquirer who adopts non-cash payment will grab greater short-term benefits. Futhermore, we find that the level of control rights functions as a means of regulation; and the higher concentrated the control rights level, the better the short-term performance the acquirer gained. This paper fills the research gap for the past empirical research of M&A performance, which only adopted the single-factor payment model. Futhermore, by intruding the level of control rights, this paper constructs the econometric model of the impact that M&A payment models have on the acquirer’s long-term performance. From the perspective of market performance and operating performance, this paper tests the impact of payment model on acquirer’s long-term performance. The empirical results demonstrate that the M&A adopting cash payment may not bring long-term abnormal return to the listed company. Yet, the M&A adopting stock payment will improve performance. Moreover, we find that, even under different levels of control rights, the impact of the M&A on different listed companies varies significantly with the same payment modelwhich means that of the corporate characteristic factors have moderating effect on the relationship between payment model and the M&A performance.