تأثیر مالکیت شرکت، نظارت هیئت مدیره بر عملکرد عملیات ادغام و اکتساب چینی The impact of firm ownership, board monitoring on operating performance of Chinese mergers and acquisitions

1 Introduction Over the past decade, the performance of mergers and acquisitions (M&A) in emerging countries such as Brazil, Russia, India and China (BRIC) has received a considerable attention in the academic milieu (see Du and Boateng 2015; Betrand and Betschinger 2012; Gubbi et al. 2010; Zhou et al. 2015; Bhabra and Huang 2013; Stahl and Voigt 2008; Boateng et al. 2008). A review article published by Du and Boateng (2012) found that the past empirical efforts have focused on the most commonly studied antecedents of postacquisition performance such as firm- and industry-specific variables and more recently on the effects of institutional factors. Relatively, few studies have examined the effects of within-firm governance and board monitoring mechanisms on M&A performance in emerging market context. Yet, prior research indicates that poor returns to acquirers arise from governance problems resulting from managers being insufficiently accountable to shareholders (Chira et al. 2016; Goranova et al. 2010; Yung 2001). In this paper, we employ two board monitoring mechanisms (independent directors and CEO duality) and within-firm governance (managerial ownership, ownership concentration and related party transactions) to investigate the operating performance of M&A in an emerging country context. Three reasons motivate this paper. First, M&A are discrete events that can substantially change the value of the firm (Sirower 1997). Masulis et al. (2007) argue that M&A are among the largest and most readily observable forms of corporate investment thereby making acquisitions ideal for testing the role and effectiveness of corporate governance systems on M&A outcomes. Second, Jensen (1986) and Jensen and Meckling (1976) argue that acquisitions exacerbate the conflict of interest between senior managers and shareholders in public companies. Thus the agency theory explanation of M&A emphasizes that the market for corporate control may yield sizable personal gains for managers at the expense of shareholders because managers who initiated the transaction may have goals different from shareholders (Masulis et al. 2007; Morck et al. 1990). Moreover, M&A, as an important managerial initiative, are subject to a board’s scrutiny of which independent directors play a critical role (Hagendorff et al. 2010). The monitoring role of the board is therefore crucial given that the agency theory suggests that CEOs are self-serving and if not monitored may engage in actions which are detrimental to shareholder wealth maximization (Jensen and Meckling 1976). The above is against the backdrop that owners and/or managers in emerging economy firms, particularly in China and India, often view board independence as a mere statutory requirement and attempt to fulfill it by appointing people who consider their role as ceremonial (Singh and Gaur 2009; Dahya et al. 2003; Wang 2007). According to Singh and Gaur (2009), the principle of board independence is thus followed only in letters and not in spirit. Emerging countries lack control mechanisms, as mergers and acquisition laws and the firm’s internal governance mechanisms remain weak (Peng 2004; Khanna and Palepu 2000). Lastly, another important driving force behind this study is the concentrated nature of the ownership structures of emerging country firms unlike firms in the United States which are widely dispersed (see La Porta et al. 1999; Dharwadkar et al. 2000; Morck et al. 2005). Many firms in emerging countries, predominantly, have single large shareholders (mostly state owned enterprises) who exercise ultimate control (Claessens et al. 2000; Young et al. 2008).