CEO Power And Acquisition Decisions

According to the Company Law of China,the Chief Executive Officer(CEO)who is appointed by the board of directors,their main responsibility is to be responsible for the daily operating management of the company.So,they have greater power than other managers in operating decisions.The more power a manager has,the more capability he or she has to gain private benefits by influencing the company's acquisition decisions.This shows that the CEOs have both “motivation” and “capability” to make acquisition decisions.The more power a CEO has,the more likely he is to make a acquisition decisions.However,some studies have found that CEOs with more power are more likely to be overconfident,and overconfidence increases the probability of irrational behavior of the CEOs.In other words,CEOs may not initiate acquisitions for personal gain,acquisition decisions may also be a sign of overconfidence.Based on the review of domestic and foreign literatures,this paper takes listed companies in China from 2008 to 2017 as research sample to explore the relationship between CEO power and acquisition decisions,by using theoretical analysis and empirical analysis.The results are shown as followed.(1)CEO power has a positive influence on acquisition decision-making,and overconfidence is the transmission path.(2)Equity compensation can negatively regulate the positive correlation between CEO power and overconfidence,and then regulate the influence of CEO power on merger and acquisition decision-making,and play a better regulatory role when the board supervision environment is weak.(3)Cash compensation adjustment can negatively adjust the relationship between CEO overconfidence and acquisition decision-making,and can play a higher adjustment effect when the board supervision environment is strong.(4)Further research has found that CEO power has a negative impact on postmerger financial performance,which decreases over time.CEO overconfidence is not the transmission mechanism of CEO power and post-merger financial performance.On the basis of the above conclusions,this paper puts forward the following policy Suggestions,in order to provide reference for the company and relevant functional departments.First,the company should determine the ownership concentration degree of the company according to its own development needs,and then determine the decision-making power of the CEO.Second,in the case of better board supervision,the proportion of cash compensation to the CEO can be more and the proportion of equity compensation less.In the case of poor board supervision,more equity compensation and less cash compensation are given,so as to adjust the influence of overconfidence of CEO power on acquisition decision.Third,in the process of examination and approval,the regulatory authorities should not only consider the financial status of the company,but also take into account other governance conditions such as the degree of ownership concentration of the company,so as to identify and timely stop irrational mergers and acquisitions.