The Influence Of Performance Feedback On M&A:the Moderating Effect Of Cash Flow Right And Deviation

Mergers and Acquisitions (M&A) have been increasing tremendously in China for these years. As one of strategic choices for firms to acquire resources and build competitive advantages, M&A has been paid much attention in management research field. However, there are few studies which combine M&A with the performance feedback, while performance feedback and its influence on firm behavior play an important role in the behavior theory of the firm (BTOF).This paper reviews related literature in the beginning, then we propose a theoretical framework which depicts the interaction effect of performance feedback and ultimate shareholder’s cash flow right, together with the deviation between control right and cash flow right, on firm’s M&A choice. Finally we analyze panel data of Chinese390manufacturing firm’s M&A activities from2009-2013, and empirically examine above theoretical framework.This paper reveals meaningful results. Firstly, negative attainment discrepancy (when performance is below aspiration) increases the likehood of exploratory M&A which is much riskier, while decreases the likehood of exploitative M&A and positive attainment discrepancy (when performance is above aspiration) just play the opposite role. Secondly, under negative attainment discrepancy, the deviation between control right and cash flow right will strengthen both the positive relationship between performance feedback and exploratory M&A and the negative relationship of exploitative M&A, while cash flow right will weaken such relationship. Thirdly, under positive attainment discrepancy, cash flow right will strengthen both the positive relationship between performance feedback and exploitative M&A and the negative relationship of exploratory M&A, while the moderating effect of deviation between control right and cash flow right is not supported.This paper expands the BTOF in M&A research and reveals the mechanism through which firms choose the type of M&A activities. Besides, it contributes to the managerial practices for firms in the emerging countries.