Excess Cash Holding,the Method Of Payment And Valuation Effects In Acquisitions

In order to achieve the goal of maximize shareholders' value,companies prefer adopting mergers and acquisitions(M&A)to integrate economic resources,improve the efficiency of resource arrangement,and then optimize corporate performance.However,many people find out that M&A didn't bring expected performance to the listed company and many M&A companies end with failure.Various domestic and overseas scholars conducted extensive research,made a series of theories through broaden researches,trying to uncover the veil of the mystery.At present,many scholars of M&A have done research on the M&A payment method selection and corporate performance,however,with inconsistent result.After Jensen suggested free cash flow hypothesis,many scholars began to study the impact cash holdings on M&A payment method selection or acquisition corporate performance.But few survey shows that the combined effect between cash holding and the M&A payment method selection currently.Therefore,considering the status of listed companies in China,this paper will explore how the integrated utility between cash holding and the M&A payment method selection influence the M&A performance.So it will provide empirical evidence to help main board listed companies choose a reasonable payment method for the M&A and improve corporate performance.This paper contains the following six sections:The first part is an introduction which outlines the background and significance of this topic,explains the article ideas and research methods and describes the innovation.The second part is a literature review which introduces the topic from 3 aspects:the influence from cash holding to M&A payment method selection,from the M&A payment method selection to M&A performance and from cash holding to M&A performance based on related research from foreign and domestic research,then make a review of the literature on all the listed researches.The third part is the theoretical basis and the impact mechanism and the related hypotheses,based on the carding theories,this paper summarize the affection machanism among cash holding,M&A payment method selection and M&A performance and makes relevant assumptions.The fourth part is empirical research design.Based on the assumption mentioned above,this part determine the study sample,select study variables and design research model.The fifth part is empirical test.Firstly,this paper verify the impact of cash holdings and the extent of excess cash holdings of M&A to payment method selection,which found that the M&A companies who owns excess cash holdings,prefer cash payment method.And the higher degree of excess cash holdings,the easier way to select a cash payment method.Besides,this paper make a regression of the M&A payment method and the M&A performance.The regression results shows that the short-term performance will be lead to deterioration and the long-term performance will be better when simply considering the cash payment method.Finally,I test the integrated utility between cash holding and the M&A payment method selection influencing the M&A performance.The survey shows that the cross-impact of excess cash holdings and cash payment method will bring the listed companies a positive short-term performance and poor long-term performance which means that the management of M&A activity was initiated in order to achieve short-term performance while sacrificing long-term performance.Considering the property divided in China,the private companies who have excessive cash and select cash payment method will generate positive short and long term M&A performance which can be explained that private enterprises may prefer to conduct more substantive merger and acquisitions and they really want to expand the scale and improve production efficiency through M&A.However,under the interaction effects the state-owned companies own significantly positive short-term performance and significantly negative long-term performance which can be explained that most state-owned enterprises initiated non-substantive mergers.The sixth part is the conclusion and recommendations which namely summarize the empirical results,make suggestions,point out shortcomings and suggest further work.The innovation of this paper is comprehensive considering how the interaction effect between cash holding and payment method affect the M&A performance and then combined with the property status to make further specific analysis.When our main board listed company begin to conduct mergers and acquisitions,the empirical result of this paper will help them to choose a reasonable payment method considering their cash holding level and improve the accuracy and practical significance of the study results.Furthermore,it will provide reference value for the government in the evaluation of state-owned enterprises' mergers and acquisitions.