The Impact Of Board Network On The Wealth Effect Of Mergers And Acquisition

The recent researches on mergers and acquisitions are more on the influence factors and limited conditions of the performance of mergers and acquisitions,now more and more scholars committed to explain the process of merger and results in new perspective.The board of directors is the key of corporate governance mechanism,plays an important role in mergers and acquisitions,and be responsible for the results of mergers and acquisitions.Existing literature focused on the composition and size of the board of directors.Recently social network between the company director,formed by common educational background,social activities and common occupation experience has attracted the attention of scholars.In a series of studies at home and abroad,the board network has opposite influence on the performance of merger and acquisition.Mufaddal(2015)supposed that network can improve the performance of mergers and acquisitions,by getting more private information and having a advantageous position in merger negotiation.On the other hand,Joy Ishii(2014)found that CEO's personal opinion network causes interference to effective corporate governance,causing "familiar bias" on Target selection and acquisition process.Seoungpil Ahn(2010)examines the impact of multiple directorships on stockholder wealth around the announcements of mergers and acquisitions.Grounded in agency theory,we argue that multiple directorships affect the quality of managerial oversight and thus influence agency conflicts in acquisition decisions.Schmidt(2015)exam the connection between takeover returns and board friendliness,using social ties between the CEO and board members as a proxy for less independent boards,suggests that friendly boards can have both costs and benefits,depending on the company's specific needs.Research on network directors and corporate governance in China is emerging,involving all aspects of corporate governance and financial.As chain directors and Auditor Selection(Chen Shihua,2012),Independent director network location and the efficiency of investment(Chen Yunsen,2011).There exists few research on board network and M&A,in the perspective of information asymmetry and Inter-organizational imitation theory,the explanation mechanism is single comparing to foreign.In addition,recent study in domestic do not distinguish the network of internal directors and independent directors(Chen Shihua,2012),or separate independent directors of the network(Wan Liangyong 2013).Because internal directors rare exists in previous time(Chen Yunsen,2011),data on board connection is limited,and the weak link of independent directors play a more important role of(Wan Liangyong,Hu K,2013).According to the latest data,the internal directors network is becoming more and more common.Due to the different duties of internal directors and independent directors,it is necessary to study on directors and independent directors respectively.Seoungpil Ahn's(2010)study highlighted the regulatory functions of company's outside directors.This paper analysis statistical description of the board connection on all A shares of listing Corporation and M&A sample company,confirm the universality of the board network.In addition,according to the latest research achievement,the paper expand related study about board network.Specifically,we distinguish network of internal directors and independent directors,to study effect on acquirer's short-term performance of M&A.In theory,based on asymmetric information theory,this paper suggests that the network provides effective information exchange channels,the private information to be transmitted efficiently,causing better performance of mergers and acquisitions.The social network is not equal,people located in the center of the social network have more information and resources,playing a role of consulting and information provider,alleviating the information asymmetry and resulting in better M&A deals.Based on the agency theory,when independent directors occupy more board in different firm,they will be too busy to oversee the behavior of managers,leading to bad M&A deals.The adverse effects will be more serious for the company urgent need supervision.In practice,this paper contains 4040 sample from 2004 to 2015.To measure the position of board network,according to Liangyong Wan,Hu Jing(2014)practices,we use degree centrality,betweeness centrality,closeness centrality,eigenvector centrality as the measure of the degree of external relations,a weak coupling effect,the efficiency of information transfer and power in the network.The M&A performance is measured by cumulative abnormal return before and after announcement.We establish the model according to the above hypothesis,and empirically test outcomes in descriptive statistics and univariate test and multivariate linear regression method.The main conclusions as follows:1.The percentage of chain board directors in board have a positive effect on the performance of mergers and acquisitions.More chain directors are in enterprises,alleviating the information asymmetry,contribute to better M&A outcomes.2.The location of chain board is positively related to acquirer's performance,more near the central mean greater influence.3.Independent directors busy degree is negatively correlated to M&A outcomes,because multiple directorships affect the quality of managerial oversight and thus influence agency conflicts in acquisition decisions.4.Based on the agency theory,when independent directors occupy more board in different firm,they will be too busy to oversee the behavior of managers,leading to bad M&A deals.The adverse effects will be more serious for the company urgent need supervision.This paper make following contribution:1.Distinguish internal directors and independent directors network respectively,are more in line with the actual situation of our country.The internal directors and independent directors play a different role,so this distinction is necessary.Recently,literatures of Chen Shihua(2013),Duan Haiyan(2008)distinguish the internal directors and independent directors,but find no relationship limited by samples.2.We find that internal chain of directors improve M&A performance,busy degree of independent directors are on the contrary.This difference reflect reaction mechanism of internal directors and independent directors,internal director provides more information,but also bear the regulatory functions.3.This paper are related to Seoungpil Ahn's(2010)"busy" theory,but we make further study about regulatory needs for different companies.This paper are also related to Breno Schmidt(2015),combining oversee and advisory function,but Breno Schmidt's(2015)study is about internal lock,whereas we study the outside network.