The Study Of Internal Control On Realizing Value Of Strategic M&A

The paper started researching from the M&A valuation, hold that the excessive high bid is a reason for the failure of the M&A transaction. At the field of enterprise value valuation, various methods including NPV(Net Present Value) method-the most extensive used and most theoretically sound-are all not considering the impact of the target company's internal control on the enterprise value. The NPV method depends on the accuracy of many indicators including free cash flow, income period, the final value of enterprises, and the cost of capital and so on. And the basic assumption to supporting the above indicators is the internal control of the company, which means that these indicators are affected by the quality of enterprise internal control. However, this important factor is always ignored in the assessment process. In addition, in the acquisition activity, besides considering the value of target companies, the acquirer's internal control of the M&A decision-making and implementation will also influence the overall valuation of the mergers and acquisition. Therefore, internal control could seriously affect the value of M&A.Based on the literature review of internal control and enterprise value, as well as analyzing the relation between M&A valuation and internal control, this paper studied influencing factors on the target enterprise value and the overall value of M&A. And then the paper proposed using internal control theory in M&A risk control method. After that the article deduced the relation between internal control and the value of strategic M&A, that is, the realization and guarantee of strategic M&A value are determined by the value of acquirer and the target, which while are both depended on their own effective internal control system.Combined with strategic management theory and internal control theory, the article designed a theoretical framework of strategic M&A value realization and internal control system. First, this paper integrated five-level business process such as strategic, planning, business, value chain, and activates and designed an internal control system with its investigation and evaluation methods under strategic management frame. Second, the paper designed an internal control system with its investigation and evaluation methods of the whole M&A process based on the COSO-ERM framework, including its four objectives and eight components of risk management. The M&A internal control system was applied from decision-making (including due diligence) to implementation (take over and integration) of the whole strategic M&A process and every step was carried out by the related implementation and monitoring sector in the enterprise.To verify whether the strategic M&A internal control is reasonable, based on internal control theory and relevant management theory, as well as strategic M&A internal control system survey and evaluation framework, the paper used empirical research via a questionnaire survey and regression analysis. The article tested the relation between the value and internal control of the target enterprise, and the conclusion turned out to be a significant positive correlation. The paper tested the relation between the value and internal control of the acquirer company, and the conclusion was also presented a significant positive correlation. So, the paper not only from the theoretical analysis and empirical research verified the hypothesis of the thesis, which an effective internal control system is able to protect the value of strategic M&A. Also, the paper clarified the relation and path-dependent of internal control's affect on strategic M&A Value.