The Effect Of Different Payment Methods On M & A Performance Of Enterprises

In today’s highly competitive society, the development of enterprises should not only rely on its internal forces, but must also seize the right opportunity to expand business scale through external expansion. Therefore, mergers and acquisitions is becoming an effective means of large enterprises to obtain synergies and expand the scale of operation. In recent years, the number and amount of corporate mergers and acquisitions occurred with rapid growth, however, among which there are failed merger cases, and the reason is the lack of guidance of M & A theory. Where payment is the final link to complete the acquisitions, and is also a very important part and attracts more and more attention. With the increasingly active M & A activity between enterprises, the choice of payment method in the process of mergers and acquisitions has changed. Since 2006, in addition to the use of traditional cash payment, equity and other means of payment as asset exchange carriers in mergers and acquisitions have emerged. In 2008, China Securities Regulatory Commission revised the "management approach of acquisition of listed companies", and Article 36 regulated:the acquirer could use cash, securities, and mix payment method of cash and securities and other payment methods to pay for the acquisition price. Different payment methods in M & A exert different influence on both acquirer and acquiree’s magnitude of risk, level of acquisition costs, taxes, etc., and are also related to the change of the selection of financing mode and ownership structure of the acquirer. To facilitate the successful completion of the process of mergers and acquisitions, to achieve the objective performance effectively, and to get better synergy, the selection of the appropriate payment method becomes very significant. Under the background of M & A activities being increasingly active and payment methods in M & A becoming more diverse, in order to promote the continuous improvement of the performance of M & A, it is very necessary to conduct an in-depth research on the different influence of different payment methods in M & A process on the performance.This paper summarizes the results of previous studies and reviews related theory on the merger motivation and the effect of payment terms on acquisition performance. Then by using the Shanghai and Shenzhen A-share market merger panel data during 2009 to 2013, and controlling other variables that may affect the results, this paper conducts empirical research on the effect of different methods of payment on acquisition performance. The results show that, the difference of payment terms does not have a significant impact on the M & A performance in the overall regression. Further grouping regression shows that, for enterprises of mature industry, if they use cash payment terms in the M & A activity, their shareholders’earning power is significantly lower than other enterprises, but the profitability is significantly lower, and if they use stock payment terms in the M & A activity, their operating capacity is significantly higher than other companies; for enterprises of growing industry, whether they use cash payment terms or not has no significant impact on the M & A performance, and if they use stock payment terms, the profitability is significantly higher than other enterprises; for enterprises of recession industry, the difference of payment methods does not affect the M & A performance. The main reason may be:in a mature industry, the development of enterprise is relatively stable, so although cash payment causes the reduction of funds and reduce the shareholder profitability to some extent, they can still quickly assimilate and improve the situation of merged business because of their relatively mature business idea and concept, thus improves the efficiency of restructuring and integration after the merger of enterprises. While the stock payment does not cut off the relationship between buyers and sellers, making the seller still has decision-making powers in the future course of development of merged business, and thus the advanced management concepts can not be implemented in merged business quickly, and therefore has a certain negative impact on the profitability of the shareholders. In the growing industry, after using cash in M & A, enterprises will quickly seize the opportunity to take other effective means to reduce the negative effects brought by a shortage of funds, thus its impact on M & A performance is not significant, and the use of stock payment helps to ease the funding shortfall in the acquisition process to a large extent, and therefore helps to improve the performance of M & A. For enterprises in a recession industry, due to the downlink state of the overall development of the industry, their business performance is mainly influenced by the macro-environment, so whether payment is appropriate or not does not arouse much waves. In addition, related party transactions, restructuring type, Tobin’s Q of last year, free cash flow and equity nature have different degrees of impact on the M & A performance.Thus, according to the results of empirical research, we recommend that enterprises of mature industry choose to use the cash payment terms or other payment terms (such as mixed payment methods, etc.) which exclude cash and stock terms, enterprises of the growing industry choose stock payment terms, and enterprises of recession industry could determine the right payment terms according to other needs. In addition, in a mature industry, companies could try to choose mergers and acquisitions of associated enterprises; companies in the growing industry could try to choose the type of equity transfer in the process of acquisition, and to improve their free cash flow in permitting of other conditions; enterprises in the recession industry should not choose the type of asset acquisitions and equity transfer in mergers and acquisitions, and should give more consideration to asset replacement, etc., while state-owned enterprises of which should focus on innovation for its own internal mechanisms. Finally, no matter what kind of industry they belong to, enterprises should think twice before starting the merger:if their corporate operating performance of last year has not trended higher, then the M & A activity is undesirable to take.This paper is divided into five parts, the schedule of each part are as follows:The first part is an introduction. On the basis of analysis of the phenomenon of mergers and acquisitions and development status of the payment, this part reviews the research literature on the impact of payment on performance of M & A, and introduces the main contents and methods, innovation and the insufficiency of the article. The key point of which is to review the research literature, clarify methods and conclusions of previous research, and summarize views and identify deficiencies.The second part is an overview of the theory. This section briefly reviews the relevant theories, including the concept of payment and performance of M & A, and the theoretical basis of the influence that payment exerts on M & Performance. Thereby pave the way for the analysis of the empirical part.The third part is the analysis of the development of M & A and methods of payment. This part is the review of history and current development of M & A and methods of payment.The fourth part is empirical analysis. By using the Shanghai and Shenzhen A-share market merger panel data during 2009 to 2013, and controlling other variables that may affect the results, this section conducts empirical research on the effect of different methods of payment on acquisition performance. The first part is the study design, including the model specification, variable selection and measurement, and data description. The following is the empirical results and analysis section, including the principal component analysis of the explanatory variables, general regression, and samples grouping regression.The fifth part is the conclusion and recommendations according to the empirical research. The part summaries results of empirical part and puts forward specific suggestions.