Research On CEO Reputation And M&A Behavior And Performance

Merger and acquisition is an important way for enterprises to realize extensive growth and expansion,as well as an important way for China to optimize resource allocation and promote industrial structure upgrading.Since 2014,China has promulgated a series of policies related to mergers and acquisitions,such as opinions on further optimizing the market environment for enterprise mergers and reorganizations and measures for the management of major asset reorganization of listed companies,in order to guide enterprises to conduct mergers and acquisitions and realize the strategy of industry integration and industrial upgrading.In practice,however,mergers and acquisitions to help enterprises leapfrog growth,promote the upgrading of industrial structure at the same time,but with appear a lot of damage to the value of the company as well as against the policy of the original acquisition phenomenon,for example,after long-term performance after the merger is negative,the merger and acquisition goodwill behind the behavior of large write-downs,mergers and acquisitions the indemnification and policy arbitrage.The emergence of these phenomena makes how to standardize and guide the merger and acquisition of enterprises become an important problem to be solved urgently.The key to solve this problem is to clarify the influencing factors and the internal influencing mechanism of these factors in the process of M&A.The academic circles attribute the value destruction after merger to the principal-agent problem.The original intention of mergers and acquisitions is to pursue synergies,but due to the selfish motivation of the actual controllers and the management,many mergers and acquisitions are ineffective and blind.The behavioral motivation often determines the consequences of the behavior.The self-interested M&A behavior,whether in the pre-M&A due diligence,target screening or the structure design of the M&A transaction,will lead to the destruction of the value of the final M&A.The CEO is the decision-making subject of enterprise M&A,and his utility function is different from that of shareholders.As the motivation of "rational man" to pursue salary and power,he will directly distort the decision-making of enterprise M&A.Therefore,how to set up an effective incentive mechanism to alleviate the principal-agent problem of CEO in the process of M&A so as to improve the performance of M&A has been the focus of scholars'research in recent years.Through a review of the literature on the factors affecting the M&A behavior from the perspective of manager motivation,scholars mainly focused on the explicit incentives such as internal compensation and the implicit incentives such as management power and promotion to explore the influence of internal incentive mechanism on the whole process of M&A.From the perspective of monetary compensation incentive,since the salary design of most CEO in China is related to factors such as enterprise scale,it will induce the CEO's short-term behaviors,blind mergers and acquisitions,and expand the enterprise scale.The promotion incentive,especially the political promotion opportunity of the senior executives in state-owned enterprises,puts the senior executives under great pressure to grow,and encourages them to choose M&A to realize the rapid growth of the enterprise.However,it will lead to the economic consequences of high M&A premium in the transaction and low long-term performance after M&A.To some extent,monetary compensation and promotion do not motivate CEO in the M&A process.Proper long-term incentive for CEO is one of the effective ways to solve the M&A paradox.Providing CEO with restricted stock option incentive can influence the decision-making of M&A,and the incentive intensity is positively correlated with the performance of M&A.Strict incentive clauses can promote the effective execution of contracts.However,on the one hand,the more detailed the incentive terms,the higher the execution cost of the contract;on the other hand,the more stringent the incentive terms,the higher the cost of contract supervision.It is worth mentioning that when the management has too much power,the incentive effect of both monetary compensation incentive and equity incentive will be greatly reduced,and the CEO will pursue the private benefits brought by control rights and launch M&A.Based on the above studies,although scholars try to find effective incentive mechanisms to guide CEO to take synergy effect as the motivation for M&A and reduce ineffective and blind M&A activities,the existing incentive mechanisms from within enterprises are difficult to play an effective governance role.Fama believed that "time" could not solve the principal-agent problem locally,and the long-term principal-agent relationship could use the "reputation effect" to motivate and constrain the behavior of agents.Even if there was no explicit incentive contract,agents would work hard under the competitive pressure of the manager market and considering long-term career development.The external manager market plays an incentive role by strengthening CEO's attention to personal reputation to restrain CEO's behavior.Compared with the internal incentive mechanism,the reputation mechanism of the manager market is similar to the long-term effect of equity incentive,but the incentive cost is lower.On the one hand,because of information asymmetry between shareholders and the CEO,the CEO's behavior is not fully observed,only through the internal incentives,such as pay,promotion contract governing the execution and supervision of CEO behavior need higher cost,and easy to produce incentive deviation,managers and CEO reputation from the market competition,is the CEO of spontaneous,in order not to be replaced and the reason of hard work,reputation the recessive incentive mechanism not only saving the cost of the execution and supervision,more can promote the realization of internal incentive.On the other hand,a high reputation can not only bring a CEO high salary and power to meet his low-level material needs,but also meet his high-level psychological needs such as socialization,respect and self-realization,which are the internal driving forces that influence individual decision making,and its value is more stable and lasting.Considering the incomplete contract and the deficiency of explicit incentive,this paper,from the perspective of CEO reputation,a hidden incentive mechanism,explores the influence of CEO reputation on corporate M&A decisions,payment methods,M&A premium and M&A performance.Specifically,this article tries to answer the following questions:(1)Can CEO reputation incentive play a governance role in corporate M&A?(2)If CEO reputation can influence the M&A behavior of enterprises,what is the influencing mechanism?(3)Will the governance effect of CEO reputation show heterogeneity at different stages and under different circumstances?In order to answer the above questions,this paper follows the following research ideas:this paper follows the research path of "background introduction and question proposal?literature review and review?theoretical basis and concept definition?research on the influence of CEO reputation on M&A behavior?research conclusions and Suggestions".First,the concept of CEO reputation is defined,the measurement method of CEO reputation is determined,and the theoretical basis for CEO reputation to play an encouraging role is summarized by combing the relevant studies on CEO reputation and the influencing factors of M&A,so as to provide a theoretical basis for subsequent empirical studies.Secondly,the influence of CEO reputation on M&A decision,payment method,M&A premium and M&A performance is analyzed theoretically and empirically.Thirdly,the paper examines the mechanism of CEO reputation influencing M&A and the heterogeneity of CEO reputation governance effect in different situations.The mediating effect model was used to test the mediating mechanism of CEO reputation influencing M&A behavior,and the heterogeneous analysis of CEO reputation governance effect in different situations,such as property right nature and growth,was comprehensively tested in combination with the influence situation of M&A behavior.Finally,based on the empirical conclusion,the corresponding policy suggestions are put forward.This paper mainly includes the following three research parts:First,basic theoretical research.It includes chapter 1,chapter 2 and chapter 3.Chapter 1 is the introduction.It includes the realistic background and theoretical background of the topic,the value of the topic,the research questions,the theoretical significance and practical value of the research,the research objectives,the research ideas,research contents and research methods followed to achieve the research objectives,as well as the research innovations.Chapter 2 is a literature review.This part makes a comprehensive and detailed analysis of the theories and empirical studies on the influence factors of CEO reputation and M&A.This paper summarizes the related researches on CEO reputation at home and abroad,including four aspects:the connotation of CEO reputation,the formation of CEO reputation,the measurement of CEO reputation,and the governance effect of CEO reputation.About M&A impact factors related research at home and abroad for carding,analysis summarizes the M&A motivation,and according to the research topic,from the perspective of managers incentive system combed the domestic and foreign managers incentive effect on M&A behavior research,find the existing incentive mechanism of M&A action governance role play of deficiencies.Secondly,the influence of CEO's reputation on corporate investment is analyzed.This paper summarizes and evaluates the research status of CEO reputation and the influence factors of M&A,and leads to the research direction of this paper.Second,the empirical test of the influence of CEO reputation on M&A behavior.It includes chapters 4,5,6 and 7.Through deductive theory and logical reasoning method,the hypothesis of this paper was developed,and the influence of CEO reputation on M&A decision,payment method,M&A premium and M&A performance was empirically tested.Among them,M&A decision mainly refers to the intention of M&A,including whether to conduct M&A and the scale of M&A.The payment method includes the probability of cash payment and the proportion of cash payment in the total M&A amount;M&A premium includes the actual level of M&A premium and the M&A premium standardized by the industry.M&A performance includes short-term M&A performance and long-term M&A performance.Short-term M&A performance is mainly measured by short-term market reaction before and after M&A announcement.Long-term M&A performance is divided into long-term business performance and long-term market performance.Thirdly,the functional mechanism test of CEO's reputation on M&A and the situational test of CEO's reputation governance effect.It includes the further analysis of chapter 4,chapter 5,chapter 6 and chapter 7.The mediating effect model was used to test the mediating mechanism of CEO reputation influencing M&A behavior,and the heterogeneous analysis of CEO reputation governance effect in different situations,such as property right nature and growth,was comprehensively tested in combination with the influence situation of M&A behavior.Finally,chapter 8 summarizes the research conclusions and puts forward corresponding policy suggestions for the improvement of corporate governance efficiency and the improvement of managers' market reputation evaluation mechanism.The main research conclusions of this paper are as follows:Conclusion 1:the research on CEO reputation and M&A decision.Most enterprises are difficult to create value after merger and acquisition,but merger and acquisition activities still occur frequently,which is attributed to the principal-agent problem in the process of merger and acquisition.This includes not only the agency conflict between shareholders and managers,but also the agency conflict between major shareholders and minority shareholders.In other words,the self-interested motive of management and the hollowing out motive of major shareholders are the two main reasons why the existing M&A activities violate the original intention.In order to avoid reputation damage,CEO with high reputation will carefully choose M&A projects and reduce the blindly expanding M&A activities motivated by self-interest.At the same time,the collusion with major shareholders should be reduced,and the merger and acquisition activities initiated by major shareholders out of the motivation of arbitrage should be reduced.The study found that,first of all,the CEO with a high reputation had a lower probability of M&A and the M&A scale was smaller.Secondly,this paper examines the mechanism by which CEO reputation reduces M&A decisions.For CEO with high reputation,the maintenance of their reputation will reduce the blindness and speculative M&A activities.This paper measures the ineffective M&A by related M&A and unrelated diversified M&A,and finds that CEO reputation is negatively correlated with the probability of related M&A and unrelated diversified M&A,thus controlling the ineffective M&A of enterprises from the source.Further,from the CEO reputation and the quality of internal control and the intermediary effect between mergers&acquisitions inspection found that high reputation CEO through the establishment of the high quality of internal control,optimize the environment of governance to achieve internal checks and balance between the interest subjects,information transfer and the accurate assessment of the risk,so as to select high quality targets,reduce invalid mergers and acquisitions.Thirdly,the relationship between CEO reputation and M&A decision shows heterogeneity under the influence of macroeconomic policies and micro-enterprise characteristics.Specifically,in the context of high uncertainty of economic policy,the negative correlation between CEO reputation and M&A probability and M&A scale is weakened.State-owned enterprises bear more policy objectives.Therefore,the negative correlation between CEO reputation and M&A probability and M&A scale is weakened in state-owned enterprises.In enterprises with high growth,the negative correlation between CEO reputation and M&A probability is weakened,but the negative correlation between CEO reputation and M&A scale is strengthened,indicating that CEO with high reputation are more cautious and will control the M&A scale in the case of inevitable M&A.Finally,the test results of the dual difference model and the Heckman two-stage model show that the negative correlation between CEO reputation and M&A decision is still valid after controlling the endogeneity problem.The conclusion of this paper is robust.Conclusion 2:the research on CEO reputation and M&A payment method.The existing M&A methods are mainly cash payment,equity payment and mixed payment of cash and equity,and the cash required for cash payment mainly comes from debt financing.Whether a CEO chooses to pay cash or equity depends on a trade-off between the risk of dilution of control and the company's ability to borrow.In this paper,it is considered that CEO with high reputation are more cautious,and they are more inclined to choose cash payment to avoid the risk of dilution of control right,approval risk and potential competition risk brought by equity payment.At the same time,a highly regarded CEO can improve the company's ability to borrow money and reduce information asymmetry.First,the study found a significant positive correlation between CEO reputation and cash payments.The CEO with high reputation has a higher proportion of cash payment in the total price of M&A,and prefers the consideration method of cash payment compared with equity payment.Secondly,this paper examines the transmission mechanism of high reputation CEO's preference for cash payment.A highly reputed CEO is able to ease the financing constraints of the acquirer,improve the ability of the enterprise to borrow,and reduce the information asymmetry in the process of the acquisition by improving the quality of internal control,so as to ensure that the enterprise chooses a more competitive cash payment method.Thirdly,influenced by the property right nature and growth of the acquirer,the relationship between CEO reputation and cash payment method shows heterogeneity.Specifically,in state-owned enterprises,the positive correlation between CEO reputation and cash payment ratio and cash payment probability has been strengthened.However,in higher growth enterprises,the positive correlation between CEO reputation and cash payment ratio and cash payment probability was weakened.Finally,this paper replaced the measurement of M&A payment method and the corresponding empirical model,replaced the measurement method of CEO reputation,and used the Heckman two-stage model to control the self-selection problem.The positive correlation between CEO reputation and cash payment was still valid,and the conclusion of this paper was robust.Conclusion 3:the study on CEO reputation and M&A premium.The M&A premium level of Chinese enterprises is generally high,and the high M&A premium is the main reason that leads to the destruction of M&A value.On the one hand,the high M&A premium is due to the "intentional act" of the major shareholders of the acquirer for the purpose of arbitrage;on the other hand,it is due to the "unintentional act" caused by the inherent uncertainty and information asymmetry in the M&A process.This paper argues that under the constraint of reputation mechanism,CEO will reduce the incentive to arbitrage with major shareholders through merger and acquisition.At the same time have the ability to obtain sufficient valuation information,improve the accuracy of the valuation.First,there is a significant negative correlation between CEO reputation and M&A premium,the study found.For CEO with high reputation,the level of M&A premium is relatively low,which is still true after the industry standardization of M&A premium.Secondly,this paper verifies that a highly reputed CEO can further reduce the probability of calculating and withdrawing goodwill impairment after M&A,and the mechanism by which a highly reputed CEO reduces the M&A premium by improving the quality of internal control.Thirdly,the relationship between CEO reputation and M&A premium shows heterogeneity due to the property right nature and growth of the acquirer.Specifically,in state-owned enterprises,the negative correlation between CEO reputation and M&A premium is weakened.In companies with high growth potential,CEO reputation has less effect on M&A premium.Finally,the conclusions of this paper are still valid after the measurement method of company cluster,CEO reputation replacement and the use of Heckman two-stage model to control the self-selection effect.Conclusion 4:the research on CEO reputation and M&A performance.A large number of studies have confirmed that merger and acquisition did not create wealth for the shareholders of the merger and acquisition company.The reason lies in two aspects:on the one hand,the merger and acquisition company launched an invalid merger and acquisition out of the self-interest motive of the management and the hollowing out motive of the major shareholders;on the other hand,the integration failure caused by the lack of merger and acquisition integration ability.In chapter 4,we have proved that reputation can play a governance role and reduce the blind and ineffective M&A activities initiated by the management.Instead,starting from the value creation of the M&A party,the target of M&A that is conducive to achieving synergies should be selected as far as possible and the source of M&A should be controlled.On this basis,the level of M&A performance depends on the integration ability after M&A.This paper holds that the key of merger and acquisition integration lies in the integration of culture,human resources and business.The CEO with high reputation has high integration ability and can effectively realize the integration of culture,human resources and business.The study found that,first of all,there was a significant positive correlation between CEO reputation and long-term M&A performance,but there was no significant correlation between CEO reputation and short-term M&A performance.Secondly,this paper examines the mechanism by which CEO reputation affects M&A performance.Reputable CEO improve long-term M&A performance by improving the quality of their internal controls.Thirdly,the relationship between CEO reputation and M&A performance shows heterogeneity due to the property right nature and CEO age.Specifically,in state-owned enterprises,the positive correlation between CEO reputation and long-term M&A performance was weakened.As CEO ages,the positive correlation between CEO reputation and long-term M&A performance weakens.Finally,this paper replaced the measurement method of M&A performance and CEO reputation,and used the Heckman two-stage model to control the selection problem.After that,the positive correlation between CEO reputation and long-term M&A performance was still valid.The conclusion of this paper was robust.In short,the influence of CEO reputation on M&A behavior is shown as follows:CEO reputation is negatively correlated with M&A probability and M&A scale;CEO reputation is positively correlated with cash payment probability and cash payment ratio.CEO reputation is negatively correlated with M&A premium level;CEO reputation is positively correlated with long-term business performance and market performance after M&A.