Cashholdings,analystfollowing And The Performance Of M&A

M&A is a way for the company to facilitate its growth,expand its scale and save transaction costs.With the development of marketization in China,mergers and acquisitions develop fast in both quantity and scale in listed companies.Recent years,the China Securities Regulatory Commission has issued a series of documents to further encourage the behaviors of listed companies' mergers and acquisitions.These documents focus on reducing and simplifying the disclosure requirements of listed companies' mergers and acquisitions with combination with the suspension and resumption of the card system,which will stimulate market vitality.It is expected that the volume of M&A transactions will increase significantly in the future.Therefore,M&A has become a hot issue in the current academic research.M&A performance of the acquiring company is affected by many factors,such as cultural differences between enterprises,payment methods for M&A,whether the parties are related parties,and the characteristics of managers,etc.The results of previous studies indicate that the factors affecting M&A performance include transaction premium,industry relevance,relative size,acquisition ratio and the proportion of the largest shareholder.In the context of China's regime,the property rights also have an important impact on M&A performance.Studies have shown that the long-term performances of M&A have improved in state-owned enterprises,but the short-term performance is poor in private enterprises.Cash is an important resource in the process of M&A transactions.Abundant cash can exert an important influence on the company's investment and financing activities.M&A is one of the important ways for the company to use cash.The analysis of the relationship between cash holdings and M&A performances is conduct based on the transactional motives,preventive motives,and agency motives held by cash.If the company holds cash based on transactional motivation and preventive motivation,then cash holdings can help reduce the capital cost of external financing,ensure that the company can obtain resources to support its development.Cash holdings can also afford the company's normal production and operation transactions.On account of ample cash flow,the company can seize high-quality investment opportunities,thereby improving M&A performance.Based on the cash incentives of the agent,cash is easy to be disposed of by the management because of its superior liquidity.Shareholders prefer to allocate excess cash as dividends,and management is more inclined to conduct over-investment and non-efficiency investment for private gain of control,which has led to more serious agency conflicts,reduce shareholder wealth,and lower the M&A performance.Therefore,when the company conducts investment activities,whether the cash holdings improve the M&A performance and increase the shareholders' wealth;or reduce the M&A performance and detract from the corresponding value,is the issue to be discussed in this paper.Can the M&A performance be improved by buffering the agency conflict caused by cash holdings?The previous literature has studied a number of internal and external governance mechanisms of enterprises.The executive's equity incentive plan links the interests of the principal and the agent,and can reduce the agency conflict caused by high free cash flow.In the internal governance mechanism,high-quality internal control can alleviate the agent conflict between shareholders and management,thus inhibiting the inefficient mergers and acquisitions caused by excess cash holdings'agent motives.If excessive cash holdings are caused by agent's motivation,the research report issued by analyst follows,a relatively exogenous variable,can supervise the management.Can this effect weaken the high cash holdings caused by agency motives and inhibit the negative effect of cash holdings on M&A performance?These issues are the entry points for this paper.This thesis selects the M&A sample of listed companies in China from 2004 to 2017,and studies whether the cash holdings of the acquiring company can affect the M&A performance,and whether analyst following can adjust the relationship between the two.By dividing the sample into strong and weak agent conflict groups,the paper studies whether the cash holding level can exert different influences on the M&A performance.In the further analysis,the relationship between the cash holding level and the agency cost is conducted to study whether the impact mechanism between cash holdings and M&A performances is the result of the increase of agency problems.The empirical results of this paper show that,regardless of short-term M&A performance or long-term M&A performance,the more the cash holdings of the acquiring company,the lower the M&A performance under the other conditions.Compared with the weak agency conflict enterprises,the higher the cash holding level in the strong agency conflict enterprises,the more significant the reduction effect on the M&A performance,but the impact in the weak agency conflict enterprises is not significant.And analyst following can mitigate the negative impact of cash holdings on M&A performance.Compared with weak agency conflict enterprises,analyst following have a more significant adjustment effect on the relationship between cash holding level and M&A performance in strong agency conflict enterprises,and can alleviate this negative effect.In further analysis,it was confirmed that cash holdings have significant positive effects on the company's agency costs.The further analysis combined with the above research results supports the explanation of the mechanism of high cash holding level on M&A performance from the agency problem.On the one hand,the empirical results of this paper further provide evidence of the Chinese market for Jensen's free cash flow hypothesis and the agency motives of cash holdings,enriching the research on M&A performance.On the other hand,it can also provide governance suggestions for enterprise practice,help enterprises to make better M&A decisions,improve M&A performance,and especially remind enterprises to pay attention to external governance and improve companies' governance while paying attention to internal corporate governance effects.