Corporate governance and M&A performance

Аннотация
INTRODUCTION 8
CHAPTER 1. MERGERS AND ACQUISITIONS: BASIC CONCEPTS AND MAIN MOTIVES
11
Definition of mergers and acquisitions 11
Main motives for mergers and acquisitions 12
Performance of mergers and acquisitions 17
CHAPTER 2. CORPORATE GOVERNANCE AND IT’S MAIN MECHANISMS 24
M&A and corporate governance 25
Main characteristics of the Board of directors 30
Formation of hypotheses of empirical analysis 39
CHAPTER 3. EMPIRICAL STUDY OF THE RELATIOSHIP BETWEEN THE BOARD
STRUCTURE AND M&A PERFORMANCE 43
Research methodology 43
Results of the empirical analysis 50
Theoretical and practical implications 55
Limitations and recommendations for future research 57
CONCLUSION 58
REFERENCE LIST 60
Купить

The world economy is moving towards global integration every year, which inevitably leads to the growth of companies and their entry into new markets around the world. This growth is driven both organically and through restructuring. Many companies choose to grow through mergers with other companies or through acquisitions of other companies. The global market for mergers and acquisitions has been developing for over 100 years and has experienced, according to various estimates, from 4 to 6 waves. The Russian M&A market is less developed but has been showing rapid growth lately. Over the past five years, the total amount of transactions exceeded $ 50 billion, and the number of transactions has been consistently above 450 per year. Even in a difficult year for the economy in 2021, the Russian mergers and acquisitions market totaled 597 deals with a total value of $ 46.5 billion. The graph below shows the dynamics of the number of transactions and their total value from 2017 to 2021.
Companies choose inorganic growth for several reasons. First, the buyer's managers expect them to get synergy from the deal. The synergistic effect is manifested in various forms. Several researchers define this effect through revenue synergies and cost synergies.
Successful purchase and subsequent integration of the company can increase the total revenue of the joint company more than the sum of the revenue of the two isolated companies. The reasons for this may be strengthening of market positions (market share), using the sales network of both companies to sell products (new markets and new consumers), using the brand of one of the companies to strengthen its position, etc.
Cost synergies can arise from the combination of the logistics network of the two companies. The joint venture company uses the same shipping methods to market different products. Savings can also arise from a joint budget for sales and marketing, research and development, sharing of information networks, etc.
Mergers and acquisitions and corporate governance are clearly linked. All important strategic decisions are made by the board of directors and the management of the company. Mergers and acquisitions must be approved by these bodies as well. The great influence of the human factor in making such important strategic decisions leads to agency conflict. Managers make decisions on behalf of the board of directors and must have a primary goal of improving shareholder wealth. Despite the documented work of managers, when making decisions, various problems arise associated with non-optimal decisions. This is due to the desire to increase personal gains, uncertainty of the future, different perceptions of risk and information asymmetry.
Agency and resource theories define the board of directors' composition and activities. The board of directors, according to the agency theory, is a corporate control device. This serves as a link between owners and managers, as well as between majority and minority shareholders in Russian reality, i.e. where there is a high concentration of ownership. According to the resource theory, the board of directors is the company's resource supplier. Individuals on boards have unique expertise, abilities, and experience, which give the organization a competitive advantage. Furthermore, the board of directors is a set of skills, a unified and balanced body that functions as an internal communication system from crucial decision-making through plan implementation.
Ernst and Young estimates that 89% of M&A deals fail. The reason for this in most cases is the influence of the human factor. The presence of a large amount of cash in the company can induce managers to buy the company with due analysis. Also, managers can be sure that the company is underestimated by the market, although in fact it is overvalued, and the buying company will only lose money. These statistics certainly suggest that the actions of managers must be properly monitored by the board of directors so that the strategic decisions taken lead to an increase in the well-being of shareholders, rather than wasted money.
There are a number of corporate governance studies, including empirical ones, conducted on Russian data (I. Berezinets, S. Guriev, V. Dementiev, T. Dolgopyatova, I. Iwasaki, I. Ivashkovskaya, Yu. Ilyina, R. Kapelyushnikov, B. .Kuznetsov). These studies are primarily concerned with the impact of capital structure and corporate governance quality on business activities in general. There are several descriptive works that characterize the composition and activities of boards of directors; however, there are only a few works that assess the impact of the board of directors on the company's financial and economic results, allowing assessment of how well the board of directors works and what characteristics of the board make its work effective in terms of business development. There are almost no studies that examine the impact of board members' personal characteristics (job experience, education, etc.) on the financial and economic results of Russian industrial businesses. Furthermore, the analysis of M&A deals performance is only focused on the structure of the board of directors, rather than the personal characteristics of directors. Experience in state-owned enterprises, international companies, work and life experience, and so on, can all play a part in the deal's preparation, implementation, and later integration.
Aim of the study and objectives
The aim of this paper is to investigate the relationship between the characteristics of the board of directors and the performance of mergers and acquisitions. To achieve this goal, I set the following objectives:
• Analyze the concepts of corporate governance, mergers and acquisitions and their relationship
• Conduct empirical research to assess the relationship between board characteristics and performance of mergers and acquisitions
• Draw conclusions based on the analysis and formulate practical recommendations
Empirical analysis was carried out using the ZEPHYR Bureau van Dijk, Thomson Reuters DATASTREAM databases and annual financial statements of companies.
The work is structured as follows: the first chapter presents the theoretical aspects of mergers and acquisitions. It describes the main motives for M&A deals, both those that are rational, leading to an increase in the value of equity capital, and the motives that underlie managers' overconfidence and self-interest, leading to the destruction of shareholder value. The second chapter describes the theoretical aspects of corporate governance. The chapter presents theories that describe the influence of the characteristics of the board of directors on the performance of mergers and acquisitions through the theory of agency conflict and resource theory. Based on the analysis of the literature, the second chapter presents the key hypotheses of the study. The third chapter is devoted to empirical analysis, including a description of the research methodology, sampling and hypothesis testing. In conclusion, on the basis of empirical analysis, conclusions were drawn and practical recommendations were made for the formation of the board of directors in Russian companies.
Купить