A Study On The Performance Of M&A With Related Party In Chinese Listed Company

Since the proposition of strategically restructure of state-owned company by government in 1997, number and scale of merger in capital market have grown rapidly. Merger has become one of the most important ways for listed companies to expand and do strategic adjustment. However, when listed companies merged with related party, because of abnormality of market and imperfection of corporate governance, related party can control or influence the company to make the merger transaction deviate from the market fair deal norm. Interest is transferred between listed company and related party, which is not for the benefit of listed company and small and medium size shareholders. Therefore, there are differences of performance between related party merger and unrelated party merger.The paper chose 107 companies listed in Hu and Shen stock market from 2003-2004 whish were involved in merger as sample, dividing them into two types, related party merger and unrelated party merger, and selected 11 financial indexes in continuous 4 years one year before the merger to establish an index system. First, statistical description is used to find out company's financial index feature before merger, influence of merger to company's performance and difference of influence to company's performance between two types of merger. The result is that Financial situation in the related party merger company is better than unrelated party merger company. Moreover, performance is better on the whole. The performance of unrelated party merger company improved sharply that year, but fall rapidly after that, which shows the restructure feature of financial statement.Second, the paper got a comprehensive score about financial situation of each company using factor analysis of 11 financial index, set comprehensive score and return on equity as two dependent variables for evaluating company performance, meanwhile, types of controlled shareholders, direction of transaction, underlying of truncation, scale of merger, ROE before merger as independent variables, and then used regression model to find out the influence of these factors to performance of related party merger. I found that merger scale is positively related to merger performance while ROE before merger has negative effect to merger performance.Finally, factors that didn't show strong relations to performance was reclassified to review variety of related party merger performance of different types of company.