Moderating effect of external governance on the relationship between management power and mergers and acquisitions firm performance in China

China's economy has shifted to high-quality growth, prompting many firms to adopt mergers and acquisitions (M&A) for structural optimization and expansion. Despite surging M&A activity in scale and volume, most enterprises fail to profit, creating a paradox between theory and practice. Behavioral finance research shows management power impacts M&A performance nonlinearly: moderate power enhances strategic decision-making and synergy for success, while excessive power breeds overconfidence, harming outcomes. While corporate governance improves M&A performance, external governance's role in moderating the relationship between management power and M&A performance remains understudied. This thesis examines how external governance mechanisms moderate management power's influence on M&A performance across dimensions, offering theoretical and practical insights. The first objective of this thesis is to examine the relationship between management power and M&A performance in the short and long term. In order to empirically verify this goal, this study uses Chinese M&A companies during 2009-2022 as samples, and uses ordinary least squares estimators. The results show that management power is significantly negatively correlated with long-term and short-term M&A performance, and the greater the management power, the worse the long-term and short-term M&A performance. The next objective is to explore the threshold relationship between management power and M&A performance. The fixed effects model is used for the samples, and the results show that management power and M&A performance are inverse-U-shaped at the significance level of 1%. The final goal is to gain insight into the role of external governance in the link between management power and M&A performance. By examining the moderating effect of external governance on management power and M&A performance, the regression analysis of interaction terms is carried out. The results show that external governance mechanism reduces the influence of management power on M&A performance and has a certain moderating effect on the relationship between the two. This thesis offers a novel perspective by examining how external corporate governance mechanisms influence the relationship between management power and M&A performance, revealing a U-shaped rather than monotonic effect of management power on outcomes—an empirical finding supported by its analysis. This U-shaped dynamic highlights managers as active strategic decision-makers adjusting M&A strategies, not passive repeat players, justifying the focus on management power. In China, where executives are often appointed via non-market methods (e.g., administrative orders), especially in SOEs, weak supervision exists. The study advises governments and boards to enhance manager market liquidity and enforce effective oversight to encourage performance-focused decision-making.

Text SPE 2024 49 - Full Text.pdf Available under License Creative Commons Attribution Non-commercial No Derivatives. Download (2MB) Text SPE 2024 49.pdf Restricted to Repository staff only Available under License Creative Commons Attribution Non-commercial No Derivatives. Download (3MB)

Actions (login required)

View Item