Corporate governance and M&A effectiveness
| Název práce v češtině: | Corporate governance a efektivita M&A |
|---|---|
| Název v anglickém jazyce: | Corporate governance and M&A effectiveness |
| Klíčová slova anglicky: | corporate governance, mergers and acquisitions, event study, agency theory, board of directors, abnormal return, estimation window |
| Akademický rok vypsání: | 2020/2021 |
| Typ práce: | diplomová práce |
| Jazyk práce: | angličtina |
| Ústav: | Institut ekonomických studií (23-IES) |
| Vedoucí / školitel: | doc. PhDr. Martin Gregor, Ph.D. |
| Řešitel: | skrytý - zadáno vedoucím/školitelem |
| Datum přihlášení: | 01.10.2021 |
| Datum zadání: | 01.10.2021 |
| Datum a čas obhajoby: | 14.09.2022 09:00 |
| Místo konání obhajoby: | Opletalova - Opletalova 26, O109, AULA Michala Mejstříka č. 109 |
| Datum odevzdání elektronické podoby: | 02.08.2022 |
| Datum proběhlé obhajoby: | 14.09.2022 |
| Oponenti: | doc. Bc. Jiří Novák, M.Sc., Ph.D. |
| Kontrola URKUND: | |
| Zásady pro vypracování |
| Motivation
Mergers and acquisitions (M&A) have a positive impact on companies by creating added value for the shareholders of the joining companies or the buyer company who in their turn experience favorable long-term performance and dividends. One of the most important coordination and regulatory factors in the process of M&As are internal and external corporate governance mechanisms. Currently, most of the works of various scholars note that the corporate governance of a company affects the effectiveness of M&A transactions significantly (Liu & Wang, 2013). One important channel is through selection. Especially when internal risk management mechanisms are weak, there is a high potential to increase in the value of the enterprise. So, the more defective the enterprise management system is, the higher is the probability of its acquisition by other companies. At the same time, stronger corporate governance improves selection of M&A projects as it more effectively restrains CEO’s empire-building incentives that motivate M&As. To support this channel, a number of studies gives arguments about the negative impact of M&A transactions on the well-being of the company's shareholders (Kinateder 2017, Blomson 2016). Therefore, there is an interest in understanding the impact of the quality of corporate governance on one of the most important decisions of companies on M&A deals. In particular, it is important to provide an analysis of individual characteristics of corporate governance that are related to the effectiveness of M&A transactions. The purpose of the study is to identify the impact of the quality of corporate governance on the effectiveness of M&A transactions initiated by European companies in Germany, Netherlands and Austria. These three countries are selected because Germany has the highest rate of M&A among the European countries, whereas Netherlands and Austria have a low number of M&A transactions. The thesis has potential to contribute especially to the analysis of listed countries where the impact of corporate governance on M&A transactions is insufficiently studied (Kazmierska-Jozwiak, 2014). |
| Seznam odborné literatury |
| Bennedsen, M., Kongsted, H. C., & Nielsen, K. M. (2008). The causal effect of board size in the performance of small and medium-sized firms. Journal of Banking & Finance, 32(6), 1098-1109.
Block, D., Gerstner, A. M. (2016). One-tier vs. two-tier board structure: A comparison between the United States and Germany. Comparative Corporate Governance and Financial Regulation. 1. Blomson, D. M. (2016). Caveat Emptor: The Accountabilities and Required Actions of Directors in Securing Value When Merging or Acquiring Companies. Paper 2 of 4: Review of Governance Literature to See What Guidance this Provides Directors Involved in Transactions. University of Technology Sydney. Campbell, K., & Mínguez-Vera, A. (2008). Gender diversity in the boardroom and firm financial performance. Journal of business ethics, 83(3), 435-451. Clarke, K. A., Kenkel, B., & Rueda, M. R. (2018). Omitted variables, countervailing effects, and the possibility of overadjustment. Political Science Research and Methods, 6(2), 343-354. Guest, P. M. (2009). The impact of board size on firm performance: evidence from the UK. The European Journal of Finance, 15(4), 385-404. Hauser, R. (2018). Busy directors and firm performance: Evidence from mergers. Journal of Financial Economics. Hoorn, F., & Hoorn, N. (2011). " Mergers & acquisitions, firm performance and corporate governance": the impact of a firm's board structure on M&A and firm performance (Master's thesis, University of Twente). Kazmierska-Jozwiak, B. (2014). Activity of Central Eastern Europe Countries on mergers and acquisitions market. Social Sciences, 83(1), 72-79. Kinateder, H., Fabich, M., & Wagner, N. (2017). Domestic mergers and acquisitions in BRICS countries: Acquirers and targets. Emerging Markets Review, 32, 190-199. Masulis, R. W., Wang, C., & Xie, F. (2007). Corporate governance and acquirer returns. The Journal of Finance, 62(4), 1851-1889. Liu, Y., & Wang, Y. (2013). Performance of mergers and acquisitions under corporate governance perspective. Open Journal of Social Sciences, 1(07), 17. Perepeczo, A. (2007). Event study in the evaluation of effects of mergers and acquisitions. Folia Oeconomica Stetinensia, 6(1), 107. Rani, N., Yadav, S. S., & Jain, P. K. (2013). Impact of corporate governance score on abnormal returns of mergers and acquisitions. Procedia Economics and Finance, 5, 637-646.. Rani, P., Shauki, E. R., Darminto, D., & Prijadi, R. (2020). Motives, governance, and long-term performance of mergers and acquisitions in Asia. Cogent Business & Management, 7(1), 1791445. Swanstrom, M. (2006). Corporate governance and the abnormal returns to acquisition announcements. Journal of Business Strategies, 23(2), 115. |
| Předběžná náplň práce |
| Hypotheses
1. Hypothesis #1: The size of the board of directors of EU listed companies has a negative impact on the effectiveness of M&A transactions. 2. Hypothesis #2: The number of independent members of the board of directors of EU listed companies has a positive effect on the effectiveness of M&A transactions. 3. Hypothesis #3: The tenure of the CEO of the EU listed companies has a positive impact on the effectiveness of M&A transactions. Methodology The most common and frequently used method for evaluating the effectiveness of M&A transactions is the cumulative abnormal returns (CAR) method, also known as “event study” for public companies (Perepeczo, 2007; Swanstrom, 2006). It will be our first step for the research methodology. The reason for the prevalence of this method is explained by the availability of the necessary information as stock quotes for the observation period. The application of the CAR method was studied by Swanstrom (2006), Hoorn and Hoorn (2011). These studies were conducted in developed capital markets, where Mark Swanstrom (2006) found a negative effect on shareholder welfare from M&A transactions after 1990, when Frans van Hoorn and Nick van Hoorn (2011) determined that the quality of corporate governance plays a significant role in the effectiveness of M&A transactions. Thus, it follows that the degree of influence is different depending on the observation window and the time period of data analysis. Having examined many articles, the most suitable one for following will be Rani (2020) and Rani (2013). I will use the Eikon Refinitiv, Factiva Dow Jones, Stock exchange market as the main databases. The approximate number of transactions during 2010-2019 are 15,672 (Eikon) excluding the missing variables the number will decrease. The final sample for the analysis of corporate governance and the effectiveness of M&A transactions will be based on the following filters: only completed transactions will be taken into account, the company's affiliation to the above countries, the announcement of M&A date corresponds to the one time periods: [01/01/2010 - 31/12/2019], government related companies will be excluded, a final sample is compiled to analyze the impact of corporate governance on the effectiveness of M&A transactions. The excluded time period 2020-2021 refers to the events of the covid crisis. This time period is removed from the sample. In addition, to collect the determinants of corporate governance that affect the effectiveness of M&A transactions, I will use BoardEx, Factiva Dow Jones database which presents all the main data on corporate governance factors required for analysis: the size of the board of directors, the number of independent members of the board of directors, the age of the CEO, the term of the CEO's tenure. Secondly, based on the above hypotheses, I will conduct a linear regression analysis of the impact of corporate governance on the effectiveness of M&A transactions (Rani et. al., 2020). This direction involves a series of linear regressions between CAR, firm performance variables (ROA, ROE) and the independent corporate governance board structure (Guest, 2010; Bennedsen et. al., 2008). For this purpose, transactions will be selected in which the company is public and belongs to a few of the European countries mainly, Germany, Netherlands and Austria, based on how important or big the transaction was and convenience of data acquisition. Also, the degree of influence of the determinants of corporate governance on the CAR of M&A transactions will be analyzed. At the end, I will analyze the correctness of the selected hypotheses and give the results of the regression analysis. There are many outliers such as missing variables that may influence the relationship between the dependent and independent variable that need to be addressed in order to reduce bias. Therefore, different aspects of corporate governance (similar to those missing variables) have been introduced into the study that influence its effect over CAR of M&A transactions, based on literature and existing studies. This can easily help to identify potential biases within the relationship and reduce the bias immediately (Clarke et al., 2018). The independent variables of corporate governance will be introduced into the linear regression equation. There is no consensus among corporate governance researchers about the addition of control variables, which ones should be added to the linear equation of regression analysis. Masulis (2007) and Campbell (2008) considered that the most appropriate control variables are the variables that characterize the conduct of an M&A transaction: relative deal size, the method of payment, industry relatedness. For further regression analysis, it is necessary to check for multicollinearity of independent variables. Expected Contribution I see my potential contribution in the field of corporate governance and M&A effectiveness in running classic regressions on cumulative abnormal returns using relatively more recent data from the following European countries: Germany, Netherlands and Austria. I will also analyze existing and related research on this topic. Outline 1. Motivation: Identification of the impact of the quality of corporate governance on the effectiveness of M&A transactions initiated by EU listed companies. 2. Studies: Literature review on corporate governance and M&A transactions will be presented, as well as the conclusions of these studies. 3. Data: The choice of data collection listed in the exchange stock markets, database on corporate governance structures. 4. Methods: I will explain the methodology of empirical research. Formulation of hypotheses for regression analysis on M&A transaction data. 5. Results: I will present the results of the study, descriptions of the results of regression analysis and conclusions regarding the hypotheses put forward. 6. Concluding remarks: Summary of the work done, I will present the conclusions based on the results of the conducted research, a regression analysis of the impact of corporate governance on the effectiveness of M&A transactions. |
| Předběžná náplň práce v anglickém jazyce |
| Hypotheses
1. Hypothesis #1: The size of the board of directors of EU listed companies has a negative impact on the effectiveness of M&A transactions. 2. Hypothesis #2: The number of independent members of the board of directors of EU listed companies has a positive effect on the effectiveness of M&A transactions. 3. Hypothesis #3: The tenure of the CEO of the EU listed companies has a positive impact on the effectiveness of M&A transactions. Methodology The most common and frequently used method for evaluating the effectiveness of M&A transactions is the cumulative abnormal returns (CAR) method, also known as “event study” for public companies (Perepeczo, 2007; Swanstrom, 2006). It will be our first step for the research methodology. The reason for the prevalence of this method is explained by the availability of the necessary information as stock quotes for the observation period. The application of the CAR method was studied by Swanstrom (2006), Hoorn and Hoorn (2011). These studies were conducted in developed capital markets, where Mark Swanstrom (2006) found a negative effect on shareholder welfare from M&A transactions after 1990, when Frans van Hoorn and Nick van Hoorn (2011) determined that the quality of corporate governance plays a significant role in the effectiveness of M&A transactions. Thus, it follows that the degree of influence is different depending on the observation window and the time period of data analysis. Having examined many articles, the most suitable one for following will be Rani (2020) and Rani (2013). I will use the Eikon Refinitiv, Factiva Dow Jones, Stock exchange market as the main databases. The approximate number of transactions during 2010-2019 are 15,672 (Eikon) excluding the missing variables the number will decrease. The final sample for the analysis of corporate governance and the effectiveness of M&A transactions will be based on the following filters: only completed transactions will be taken into account, the company's affiliation to the above countries, the announcement of M&A date corresponds to the one time periods: [01/01/2010 - 31/12/2019], government related companies will be excluded, a final sample is compiled to analyze the impact of corporate governance on the effectiveness of M&A transactions. The excluded time period 2020-2021 refers to the events of the covid crisis. This time period is removed from the sample. In addition, to collect the determinants of corporate governance that affect the effectiveness of M&A transactions, I will use BoardEx, Factiva Dow Jones database which presents all the main data on corporate governance factors required for analysis: the size of the board of directors, the number of independent members of the board of directors, the age of the CEO, the term of the CEO's tenure. Secondly, based on the above hypotheses, I will conduct a linear regression analysis of the impact of corporate governance on the effectiveness of M&A transactions (Rani et. al., 2020). This direction involves a series of linear regressions between CAR, firm performance variables (ROA, ROE) and the independent corporate governance board structure (Guest, 2010; Bennedsen et. al., 2008). For this purpose, transactions will be selected in which the company is public and belongs to a few of the European countries mainly, Germany, Netherlands and Austria, based on how important or big the transaction was and convenience of data acquisition. Also, the degree of influence of the determinants of corporate governance on the CAR of M&A transactions will be analyzed. At the end, I will analyze the correctness of the selected hypotheses and give the results of the regression analysis. There are many outliers such as missing variables that may influence the relationship between the dependent and independent variable that need to be addressed in order to reduce bias. Therefore, different aspects of corporate governance (similar to those missing variables) have been introduced into the study that influence its effect over CAR of M&A transactions, based on literature and existing studies. This can easily help to identify potential biases within the relationship and reduce the bias immediately (Clarke et al., 2018). The independent variables of corporate governance will be introduced into the linear regression equation. There is no consensus among corporate governance researchers about the addition of control variables, which ones should be added to the linear equation of regression analysis. Masulis (2007) and Campbell (2008) considered that the most appropriate control variables are the variables that characterize the conduct of an M&A transaction: relative deal size, the method of payment, industry relatedness. For further regression analysis, it is necessary to check for multicollinearity of independent variables. Expected Contribution I see my potential contribution in the field of corporate governance and M&A effectiveness in running classic regressions on cumulative abnormal returns using relatively more recent data from the following European countries: Germany, Netherlands and Austria. I will also analyze existing and related research on this topic. Outline 1. Motivation: Identification of the impact of the quality of corporate governance on the effectiveness of M&A transactions initiated by EU listed companies. 2. Studies: Literature review on corporate governance and M&A transactions will be presented, as well as the conclusions of these studies. 3. Data: The choice of data collection listed in the exchange stock markets, database on corporate governance structures. 4. Methods: I will explain the methodology of empirical research. Formulation of hypotheses for regression analysis on M&A transaction data. 5. Results: I will present the results of the study, descriptions of the results of regression analysis and conclusions regarding the hypotheses put forward. 6. Concluding remarks: Summary of the work done, I will present the conclusions based on the results of the conducted research, a regression analysis of the impact of corporate governance on the effectiveness of M&A transactions. |