The Impact And Economic Effect Of Management Irrationality On M&A Premium

In recent years,China's financial market is experiencing a rapid development stage,and a growing number of companies have chosen to expand through mergers and acquisitions.The premium arising from mergers and acquisitions between enterprises have also accumulated high goodwill in the market.As of the end of 2017,the market has a total goodwill around 1.3 trillion yuan,an increase of 390% compared with 333.3 billion yuan in 2014.The number of listed companies that have accumulated goodwill has grown from 1,000 in 2014 to nearly 2,000.Together with the goodwill,there is also the impairment loss of goodwill accrued by the listed company.In 2014,the impairment loss of goodwill in the market was about 2.656 billion yuan,and it reached to 36.704 billion yuan in 2017.The impairment loss exceeded 120 billion yuan in 2018,10% exceeded the growth of goodwill that year.The loss of goodwill directly erodes the profits of listed companies in the current year,and even generates huge losses.In this context,this paper cuts in from the perspective of management irrationality,and discusses the causes of the goodwill of the listed companies and its subsequent economic effects.The formation of such large-scale goodwill and the provision of impairment of goodwill may be directly related to the irrational behavior of the management of the listed company.Studies have shown that the management of listed companies in China generally has irrational behaviors,and such behaviors often lead to over-investment and excessive mergers and acquisitions,thereby damaging the long-term value of the company.Then,will the management's irrational behavior cause it to pay more in the M&A decision-making process,leading to an overestimation of goodwill? In this context,this paper cuts into the irrational behavior of management and discusses the causes of the huge commercial reputation of listed companies and their subsequent economic impact.In terms of theoretical research,this paper is based on agent theory and behavioral finance theory,and combines existing literature to study how management irrationality affects listed companies' mergers and acquisitions.At the same time,this paper is based on the synergistic effect theory to analyze the impact of M&A premium on the short-term and long-term performance of listed companies.Finally,this paper further explores whether market investors will overreact to the “merger premium” through overreaction theory and whether a high M&A premium will increase the risk of a company's stock price collapse.In terms of empirical research,this paper collects the data of China's listed companies from 2009 to 2017,and discusses the impact of management irrationality on the M&A premium and the subsequent economic effects.The research in this paper shows that:(1)Management irrational significantly enhances the goodwill of listed companies.Affected by their own emotions and external behavior factors,the management of listed companies usually exhibits irrationality,that is,paying too much attention to short-term gains and ignoring long-term interests.Since management's salary level is usually linked to company performance,in order to obtain higher short-term remuneration,management usually pays a higher M&A premium in M&A activities to enhance the company's short-term value;(2)M&A goodwill enhances the company's short-term performance and market valuation,but has a negative impact on the company's long-term performance and value.(3)Compared with the company's internal performance,the impact of mergers and acquisitions on the valuation of listed companies is more rapid,and the reversal is more intense,indicating that investors may overreact to the event of listed companies' premium mergers and acquisitions;(4)The M&A premium significantly increases the risk of stock price collapse.The main contributions of this paper are as follows:(1)In research and practice at home and abroad,management irrationality usually leads to its deviation from the principle of maximizing the interests of listed companies' stakeholders in the investment decision,which has a negative impact on the company's performance,but The existing literature lacks the research on the influence of management irrationality on the M&A premium of the company,and does not consider the impact of different salary structure and shareholding structure on the irrational behavior of management.The research in this paper fills the gap in this aspect.(2)The existing literature on the impact of M&A premium on the performance of listed companies mostly focuses on the research on the short-term performance of the company,and pays less attention to its impact on the company's long-term performance.This paper studies the short-term and long-term impact of the company's performance and its path of change,which enriched the literature in related fields.