The Impact Of Top Management Team's Investment Bank Background On Acquisition Premium

Theoretical research and practical experience shows that high premium will result in negative performance in long term in acquisition and then makes the acquisition integration a failure.In acquisition transaction,top management teams are the decision makers and executors of acquisition premium,so studying how the background of top management teams effecting the premium matters much.Research on acquisition premium has always been a hot topic in academia,based on the research of domestic and foreign,I summarized the studies of premium from cross-board aspect,enterprise aspect and executives aspect.Executives'characters influence premium from management overconfidence aspect is the typical theory of Behavioral finance theory.Its conclusion is that top management teams'over-confidence will result in high premium in acquisition.Considering top management teams are the acquisition premium decision maker,but few researches have focused on this topic.Based on the former research,this paper tries to study the impact of top management teams' character on acquisition premium.Although Behavioral finance theory puts its attention on premium executives—top management teams,its main conclusion it is that executives' irrational behavior results in high premium.Considering the trade's complexity and difficulty,Behavioral finance theory cannot explain the relatively rational behavior of executives in M&A.As we all know,top management teams are the deciders and executives,but existing research puts less attention on how professional background effects premium.Upper Echelons Theory provides a good perspective for this study.Its core idea is that top management teams' experience,values,and characters etc.will make them explain their organization,based on this explain,their behaviors selections will be different,and then this difference will effect strategy selection and performance of organization.This paper's core view is that top management teams' investment bank background will effect acquisition premium.Top management teams(TMT)who are from investment bank industries have a wealth of knowledge and experience of acquisitions and mergers in their career.In transaction,they know how to assess the value of the target,avoiding high premium;in acquisition transaction,considering Acquisition Adviser's existence and the difference of state-owned enterprises and private enterprises,based on theoretical analysis,I establish two proxy variables,one executive job demands,and another managerial discretion to study how their investment bank background effects acquisition premium in two different situation.The data is based on listed company in China from 2006 to 2015.After rigorous empirical analysis,I list the main conclusion as follows:(1)top management teams with investment bank background will pay lower premium in transaction;(2)Acquisition Adviser's existence will reduce the impact of their investment bank background;(3)comparing with state-owned enterprises,in private enterprises,because top management teams have high managerial discretion,they will pay much lower premium in acquisition.The most valuable innovation is that I use background of top management teams as a breach to study premium,spreading the area of study of this theme;another innovation is that I introduce two variables to study the effect of top management teams with investment bank background.