Research On Real Earnings Management, Institutional Investor Governance And M&A Performance Issues

Merger and acquisition(M&A)is an efficient way for companies to expand rapidly and allocate resources.For purpose of meeting the expectation of investors,companies may make use of earnings management to improve M&A performance.In the meanwhile,with the development of China capital markets,shareholding ratio of institutional investor has been increased.Many M&A events are supported by institutional investor.Previous literature shows that accrual earnings management has negative influences on M&A performance.Moreover,institutional investor as outside shareholder has the function of corporation governance which can restrain earnings management.The deep involvement of institutional investor to capital market will increase its participation in M&A.As consequence,institutional investor can play a part in corporation governance in M&A.This paper based on corporation governance function of institutional investor,using empirical test method to study the influence of real activity earnings management to M&A performance and regulating effect of institutional investor on it.Furthermore,the influence factors of institutional investor playing the corporation governance role have also been studied.In this paper,we choose 440 M&A events in the year 2011-2014 conducted by 392 acquirers which are listed in Shanghai and Shenzhen Stock Markets of A-share in China.The research findings are as follows:(1)real activity earnings management has negative influence on M&A performance;(2)the institutional investor stock ratio,or the shareholding ratio check-and-balance between institutional investor and the first majority shareholder will restrain the negative influence of real activity earnings management on M&A performance;(3)pressure sensitive institutional investor compared to pressure resistant one will restrain the negative influence of real activity earnings management on M&A performance;(4)In the sample of non-state-owned company,real activity earnings management has stronger negative influence on M&A performance,and institutional investor has stronger negative regulating effect on the harm of real activity earnings management to M&A performance.Based on the research findings,this paper offer the following suggestions:(1)strengthen the supervision of real activity earnings management in M&A;(2)attach importance to institutional investor in corporation governance and set policy to accept institutional investor in proper time;(3)improve institutional investor governance mechanism and make proper policy considering the requirements of independence and check-and-balance of institutional investor.