The Influence Of The Former Colleague Relationship Between CEO And Directors On The M&A Performance Of The Company

As an important means of business expansion,M&A can enhance the overall competitiveness of enterprises.So it's become more and more common for enterprises to merge and acquire other companies in the process of development.However,from the perspective of market performance,mergers and acquisitions may not necessarily bring positive returns to buyer company's shareholders.Therefore,when making M&A decisions,enterprises need to consider multi-faceted inspections of target companies to ensure that the merger and acquisition will increase corporate value and improve the market performance of the company.M&A decisions are generally proposed by management especially CEO,and the board of directors is responsible for deliberation.In the decision-making process,the board needs to play a supervisory role as well as an advisory role.The decision-making process is necessarily influenced by the social relations between the directors and the management.Existing research has proven that the fellowship between CEO and directors will affect corporate governance.Then,also as an important part of corporate development,whether the performance of mergers and acquisitions is also influenced by the social relations between the CEO and the directors,such as the former colleague relation,no scholars have conducted research yet.Taking the M&A events from China's A-share market in 2004-2015,this paper studies whether the former colleague relation between merger company's CEO and the directors will influence the M&A performance(including short-term M&A performance and long-term M&A performance).The conclusion is as follow:the higher the proportion of directors who have former colleague relations in the board,the worse the M&A performance of the company;the greater the number of directors who have former colleague relations in the board,the worse the M&A performance of the company.Further tests found that when conduct multi-window period inspection of short-term M&A performance and long-term M&A performance,the conclusions are still valid.The results prove that when directors and CEO have former colleague relation,the personal relationship between the CEO and the directors is much more friendly.This kind of friendly personal relationship weakens the supervision function of the board and enhance the power of the management,especially the CEO.So it will be much more likely for CEO to put forward high-risk M&A proposals.In addition,the former colleague relation between the CEO and the directors will also make the board perform supervisory and advisory function worse.This paper has theoretical and practical significance.First,this article focuses on the influence of personal relationships between CEOs and directors on M&A performance,expands the research on internal social network and corporate M&A performance.Second,this paper further explains the internal social network from the perspective of M&A performance.The research provides advice for on company senior management arrangements conducts and merger chooses of the target company.