Research On The Effect Of Enterprise Mergers And Acquisitions On Financial Risk Based On Managerial Overconfidence

Abstract:With the development of market economy in our country, more and more enterprises participate in mergers and acquisitions, M&A has become an important way for enterprises to grow and develop. However, some abnormal M&A activities also appear. Many M&A activities not only failed to achieve the expected effect, but also brought financial risk to the enterprise. Traditional economics based on the rational man hypothesis cannot provide perfect explanations for the abnormal M&A activities or financial distress. On the other hand, the rise of the behavioral finance can provide a good supplement to traditional economics, as well as a new perspective for the related research of enterprise M&A.This paper studies the effect of enterprise M&A on financial risk from the aspect of managerial overconfidence in the behavioral finance. Firstly, the relevant literature and theory is reviewed; then, a model about managerial overconfidence and enterprise M&A is found for analysis of the effect of managerial overconfidence on enterprise M&A. Based on above work, this paper further analyzes the influence of enterprises’ M&A activities implemented by overconfident managers on enterprises’ financial risk, and puts forward the research hypothesis. Furthermore, this paper uses the data of listed companies which released the annual performance forecast from2010to2012as samples for the empirical test. After descriptive statistics analysis, correlation analysis, regression analysis and the robustness test, following conclusions are drawn:(1) There is no significant relationship between managerial overconfidence and enterprises’ M&A activities;(2) When firms are flush with free cash flow, overconfident managers will implement more M&A activities;(3) The M&A activities implemented by overconfident managers will increase the enterprises’financial risk.Finally, according to the empirical conclusions, this paper proposes some suggestions which can regulate managers’ overconfidence psychology and avoid or reduce the negative impact on enterprises brought by irrational M&A activities, such as the financial risk. Then this paper puts forward some prospects about the future research. There are4graphics,18charts and87references in this paper.