Analysis Of The Relationship Between Insider Reduction And M&a At A Premium

In 2018,not only a few listed companies suffered huge goodwill impairments,which severely affected corporate performance and caused stock market turbulence.The source of huge goodwill lies in the company’s high M&A premium in the early stage.Under the pressure of the overall economy,the goodwill risk caused by premium M&A is gradually exposed.At the same time,after the reform of non-tradable shares in China,the secondary market has become an important place for insiders to reduce their holdings.Based on information advantages and capital advantages,insiders have the possibility to maximize their personal interests and avoid risks by means of precise reduction of holdings.According to past studies,premium M&A tends to increase stock prices and bring excess returns to shareholders in the short term.However,the huge impairment of goodwill after M&A indicates that the performance of the subject matter of the merger fails to meet expectations,and the company does not get good returns after paying huge merger costs in the early stage.Therefore,when insiders achieve information advantages,it is worth thinking that how do insider view premium M&A and whether there will be a situation that insiders use premium mergers to realize their private interests.According to the merger arbitrage hypothesis,the valuation of listed companies in China is higher than that of unlisted companies,and the acquisition of unlisted companies at a premium is conducive to the realization of valuation arbitrage in different markets.Insiders can make fully use of the information advantage and decision-making power of M&A events.On the one hand,they can raise the merger premium to push up the arbitrage space,on the other hand,they can cash out in time when the goodwill risk is not exposed.This paper selects the media industry with high premium and frequent impairment of high goodwill as the observation target to explore the relationship between insider reduction and premium M&A.Firstly,this paper conducts an empirical analysis on the data of M&A transactions and insider reduction in the industry from 2009 to 2018 to verify whether there is any effect between M&A premium and insider reduction.Secondly,this paper selects Dalian Zeus Entertainment Co.,Ltd as the research object.This company is a media enterprise with the highest goodwill impairment in 2018 in China.By analyzing its merger events,insider reduction situations and capital operations,the merger arbitrage hypothesis can get supporting at a micro level.We can also furtherly find that there is a correlation between insider’s decision to reduce holding and premium M&A.Through the research of this paper,it is found that from the empirical results of media industry data,M&A premium has a significant impact on insiders’ reduction probability.There is a positive correlation between M&A premium and insider holding reduction probability.Through analyzing the problems of Dalian Zeus Entertainment Co.,Ltd.,the insiders are not only found out the behavior of reducing holding shares after M&A,but also existed in the situation of over optimistic estimation of the performance commitment,use of related party transactions to transfer the risk of goodwill,use of high equity pledge to raise leverage,covertly reduce holding and many illegal disclosures.Such analysis provides further evidence for merger arbitrage hypothesis.Finally,this paper summarizes the research results of premium M&A,insider reduction and related market irregularities.It also puts forward suggestions from three aspects of corporate governance,regulatory policy recommendations and investment of Minority shareholders.It points out that companies should strengthen the management of decision-making and internal control.The regulatory authorities should further improve the review of M&A,supervision of stock reduction,disclosure requirements and protection of minority shareholders’ rights.Minority shareholders should also be cautious about the M&A behavior when they make investment decisions.They should pay attention to the insider reduction,goodwill impairment and other important signals.