The Product Market Competition?Managers' Overconfidence And Merger Premiums

Acquirer tends to pay a higher premium in the process of implementation of M&A transactions among in listed companies which became the main reason to lead to poor operating performance both in short or long run.At present,the low efficiency of M&A events emerge in an endless stream in China.However,it does not reduce the enthusiasm of managers to implement M&A.Therefore,it is necessary to study the motivation behind the management of irrational mergers and acquisitions behavior.The theory of behavioral finance has emerged,developed and improved in recent decades,which is highly representative of the results of the theory of over-confidence.Compared to the psychology of over-confidence,behavioral finance on the excessive confidence in the performance of the future to overestimate the future earnings,underestimate the risk of the project and the loss which will lead managers to make irrational economic decisions in business activities.Managers are more likely to have this kind of over-confidence,so this paper tries to start from this point of view,researches managers' over-confidence in the implementation of mergers and acquisitions of the company to produce the impact of mergers and acquisitions.Competition is an important concept in economics,which can improve social productivity and increase social wealth.Product market competition as an external governance mechanism is considered to be an important part of the corporate governance mechanism,is a powerful tool to solve the agency problem between managers and owners,product market competition is more intense,will automatically strengthen the effectiveness of corporate governance.In this paper,the author uses the product market competition as an external environment variable to investigate whether the relationship between the manager and the excessive confidence in the acquisition premium has a regulatory role.In this paper,we select the A listed companies in Shangjai and Shenzhen Stock Exchange listed companies in 2010-2014 which use the equity subject of M&A transactions as the research sample which study on the motivation behind the high M&a premium and the moderating effect of product market competition.The results show that managers' over confidence is significantly positively related to the premium of M&A,especially in the state owned enterprises;The significantly negative correlation between product market competition and M&A premium shows that product market competition does have a certain external governance mechanism which conduct by reducing the manager's overconfidence.Because of the special property right system arrangement in China,the moderating effect of product market competition is more significant in non-state owned enterprises whereas the moderating effect is limited in state-owned enterprises.The main innovation of this paper lies in the perspective of behavioral finance theory to explore the impact of managers' overconfidence on the impact of mergers and acquisitions premium and further to enrich the theory of traditional finance.It is the first time to verify that the external governance mechanism of product market competition can influence the psychology of managers' overconfidence and then restrain the behavior of the paying high premium.In addition,this paper considers arrangement of the special property rights system in China which introduces the differences of property right into the research to discuss the difference of the governance of the product market competition under the special national condition and the system background.