M&A And Corporate Governance

Under modern enterprise system, separation of proprietary rights from management rights arise questions of agency between shareholders and managers. Based on information dissymmetry and conflicts of interest, managers may encroach on the benefits of shareholders, shareholders, therefore, are inclined to set up a complete system to supervise and control that kind of activities. The core purpose of corporate governance is to solve these problems of agency. As an external mechanism, merger and acquisition (M&A) is"the last means of constraint"when internal mechanism for corporate governance is invalidated. M&A can help external managers control the target enterprise across its current management and the board so as to improve its structure of corporate governance. In the western mature capital market, M&A is an effective mechanism for restricting and punishing those internal managers with bad behavior. In China, it is also transparent that the more frequently M&A happens, the more important role the market of corporate controlling right plays in the field of corporate governance.Circling round the relationship between M&A and corporate governance, the author focuses on verifying whether M&A of China's listed companies has improved the corporate governance and performance, and studying how governance characteristics of target corporate have impacted on M&A. At the beginning, the author formulates corporate governance theory, and analyzes internal and external governance mechanisms. Then, a complete treatment is made on effects of M&A on improving the governance structure and solving problems of agency by introducing Manne's theory of corporate control market as a breakthrough point. Moreover, the author enlarges on the interrelationship between corporate governance and M&A from the following detailed perspectives: structure of shares allocation, the board of director, the management turnover and governance performance, and summarizes related articles and opinions about empirical analysis. In the part of empirical analysis, the author uses the principle component method to empirically analyze M&A influence in corporate governance according to companies with changes of primary shareholder in 2003. The results show that the scores of both governance structure and performance drop in the year that M&A takes place, while increases sharply in the next year, exceeding those of the year before M&A happens. Furthermore, by combining the factor analysis method with logistic regression method, the author compares characteristics of target companies with shares transfer in 2005 and non-target companies between Shanghai 180 Index and Shenzhen 100 Index, and studies impacts of corporate governance on the happening probability of M&A. It is showed that M&A takes place more easily in those companies, which have lower financial performance, higher percentage of non-governmental shares, better management stimulation, and less associated guarantees. Last but not least, the author gives some suggestions for boosting the interaction between M&A and corporate governance and pushing them into positive cycle according to the outputs of empirical analysis and the drawbacks from share allocation, capital market and law and regulation.