Open Journal of Social Sciences
2013. Vol.1, No.6, 17-25
Published Online November 2013 in SciRes (http://www.scirp.org/journal/jss) http://dx.doi.org/10.4236/jss.2013.17004
Open Access 17
Performance of Mergers and Acquisitions under Corporate
Governance Perspective
—Based on the Analysis of Chinese Real Estate Listed Companies
Yong Liu, Yongqing Wang
School of Business Administration, South China Universit y of Technology , Guangzhou, China
Received 2013
This paper investigates the impact of mergers and acquisitions (M&A) on corporate performance. This ar-
ticle selects 36 M&A cases of China’s listed real estate companies in Shanghai and Shenzhen Stock Ex-
changes from 2008 to 2009. Regarding the corporate value in 2011 as the measure of the long-term per-
formance, we will explore the relationship among check-and-balance Ownership Structure, board size,
and institutional investors impact the performance. This paper concludes a positive impact ownership
structure on the M&A performance. In addition, the empirical analysis reveals that that the board size has
a significant negative effect on the performance. Additionally, the results of the paper indicate that the
CEO-Chairman duality has a significant impact on the long-term performance. Besides, institutional in-
vestors have positive effect on M&A performance.
Keywords: Corporate Governance; M&A; Long-Term Performance; Real Estate
Introduction
Mergers and acquisitions as growth strat egies have received
attention from developed as well as emerging economies. In the
21st century, the global M&A transactions created a new record
both in quantity and scale. Clearly, the M&A activity has be-
come an important way to seek resources and development.
M&A, however, can really make a profit for the enterprise, or
increase the shareholder’s wealth? It has also been an academia
controversial problem. Since the first M&A case of listed com-
pany come out in China, the number of such cases have grown
with each passing day. Increasing competitions in the Chinese
market lead to constant take over activities and gradual expan-
sion of acquisition scale, the cumulative volume of business
transactions of M&A hit 910.9 billion Yuan in 2006-2009,
which is 40 times as much as that in the period of 2002-2005.
Under the environment of market economy, companies can
achieve its goal by accumulating internal resource and the
mergers and acquisitions. George Stigler noted that no compa-
nies can grow without merge and acquisition to some extent.
Large companies can hardly grow by organic business expan-
sion, as a source of growth is particularly e vident in developing
country. Therefore, M&A exerts an important influence on the
development of the industry.
In the American history, there were five waves of mergers
and acquisitions. Facing with the offensive threat of the multi-
national enterprises, the companies of China should enhance
their comprehensive competitive power through the local merge
and acquisition as to improve their inferior position in the area
of resources and market after entering WTO. Affected by the
global financial crisis, the number of M&A transactions in
2008 was only 1441, a sharp drop by 18.73% compared with
that in 2007. But the total transaction turnover still hit 488.81
19 billion Yuan, increasing by 10.85%. These statistical data
are well-explained the trend of M&A transactions. In addition,
the trend of M &A has moved away from poorly-related acqui-
sitions that diversify business to highly-related acquisitions that
focus their advantage.
M&A transactions are significantly different in number and
volume of trade in different industries. Facing the financial and
market pressures, many real estate companies, especially the
leading ones, purchased some small firms. In 2008, the industry
of manufacturing and real estate are the most active ones in
merger and acquisition activity, much more than the rest.
The world has experienced a few large tides of mergers and
acquisitions, promoting the development of the country and
boosting the modernization of the industrial structure. Real
estate industry has an important impact on the whole national
economy. Today, the impact of these merger and acquisition
activities on the enterprise performance is worth of some aca-
demic study. To understand the impact of M&A on perfor-
mance, managers can make correct strategy. Small investors
can reduce investment risks, and increase return on investment
(Guo & Chen, 2013). Therefore, this paper is of practical and
theoretical significance. Compared with related research, this
paper has several contributions as follows:
Firstly, this paper comprehensively analyzes the influences
of Corporate Governance on acquiring companies’ M&A per-
formance. While researching M&A transactions, many scholars
have brought ownership structure into their study scope. But,
they mostly focused on the influences of ownership concentra-
tion and ownership nature, and rarely investigated the effect of
check-and-balance relationships among big shareholders in
ownership structure. What’s more, this paper take institutional
investors and CEO duality into consideration .Therefore, this
paper contributes to the extension and perfection of researches
on influencing factors of M&A performance.
Secondly, this paper also examines factors that may influ-

Y. LIU, Y. Q. WANG
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18
ence the M&A performance. Those factors were selected partly
with the help of literature analyses and partly in virtue of model
deductions. And the final empirical tests found that these fac-
tors had indeed impacts on the performance. On one hand, it is
the further validation of existing research results, and on the
other hand it also provides new theoretical perspectives and
empirical evidence, which makes the research on corporate
governance and M&A performance more detailed and com-
plete.
The remainder of the paper is organized as follows. Section 1
presents the literature review. Section 2 introduces to the cur-
rent situation of real estate in China. Section 3, the paper puts
forward four hypothesizes. Section 4 presents data selection
and the analysis model results. Section 5 discusses the conclu-
sions and their implications. At last, we make several sugges-
tions for further study.
The Literature Review
With acceleration of the economic globalization process, the
worldwide market competition is becoming increasingly intense.
Merger is widely considered to be a significant tool by the en-
terprises looking for an unbeaten success in the fierce competi-
tion. Since 1980s, three major merger waves have swept China
in several decades, while counterpart of which in western coun-
tries takes more than one hundred years. Essentially, only suc-
cessful merger could help enterprises to enhance its business
performances, and it is the result of a game played by multiple
sides to determine whether the merger effects are taken advan-
tage of or not. Thus, clarifying the influences of merger on
business performances of listed companies in China, studying
the trend of changes of merger performances, and offering
practical countermeasures and suggestions would be meaning -
ful both from theoretical and practical perspectives to enhance
merger performances, exploit cooperative merger effects, regu-
late stock capital market and maintain stability of financial
market.
Why do companies choose merger? Broadly speaking, there
are three main reasons: 1) economies of scale theory: mergers
and acquisitions among enterprises will lead to lower marginal
costs and the improvement of the competition; 2) synergistic
effect: The synergies gained from the merger would lower the
cost and increase the efficiency of resource allocation; 3) Di-
versification Management Theory: the company can maintain
financial stability, reduce asset and risk diversification. M&A
are one of the mechanisms by which firms gain access to new
resources; via resource redeployment, they increase revenues
and reduce cost. Limited resources should be transferred from
the inefficient enterprises to the high efficient ones, which is
conducive to the optimization of resources and the formation of
large companies. Mergers and acquisitions in this process play
a vital role in industry consolidation.
In the previous studies, scholars have come to inconsistent
conclusions on the effect of acquisition. Some (Phalippou &
Gottschalk, 2009; Jang & Liu, 2012) concluded that the acqui-
ree usually gets higher returns although the acquirer has certain
advantages. Yu (2011) found that M&A did not improve the
performance of the entire enterprise through the sample of
Chinese stock market listed companies i n 2007-2010. Rani et al.
(2013) claimed that mergers and acquisitions have not resulted
improvement in assets turnover ratios, as initially there might
not be increase in sales and any consequently, further im-
provement in combined capacity utilization may not be possi-
ble.
However, some studies indicate that M&A appear to have
been beneficial for the acquiring companies in the long-run
with regard to their operating performance. The findings sug-
gest that profitability of acquiring firms have improved during
post-M&A phase. Mergers and acquisitions have resulted to
better and improved performance. Du & Guo (2012) found that
the M&A is an important factor in promoting business growth,
and the effect is more obvious after 2 or 3 years.
According to the existing literature, the study appears to op-
posite result, because they selected different performance indi-
cators and control variables. Das et al. (2012) pointed out that
the M&A performance measures are diverse owing to hetero-
geneous views on what constitutes M&A performance and or-
ganization performance. They are categorized under Account-
ing Measures, Market Measures and Other Measures, including
subjective assessments. Hagendorff & Keasey (2009) found
that the long-term performance of M&A is measured by the
third year company value.
The transition is a characteristic of Chinese economy. In the
current capital market system, mergers and acquisitions market
are with distinct characteristics of the times. The market me-
chanism is imperfect, so the company relies on non-market
system. In the current stage, the state-owned enterprises have
the advantages of the government relations and market position.
The literature about corporate governance identifies three
prominent parts: board, check-and-balance ownership structure
and CEO duality. One other factor that may influence long-term
performance was also analyzed in the paper—Institutional in-
vestors. OECD (2004) defines corporate governance is one of
the key elements that improves a firm’s performance, and the
fluctuation of capital markets, stimulating the innovative activ-
ity and development of enterprises. However, Manpreet Singh
Gill (2009) found that there is no unanimity among the re-
searchers about the relationship between corporate governance
and M&A performance. One also finds that most of the work in
this regard was done in the context of developed countries.
The logic of the paper reflects the relationship between
long-term performance of M&A and corporate performance
(board of directors, institutional investors and equity balance).
Hermalin et al. (2003) found that the board of directors’ fea-
tures can cause significant effects on shareholder value. Perry
and Shivdasani (2005) stated, “Charged with hiring, evaluating,
compensating and ongoing monitoring of the management, the
board of directors is the shareholder’s primary mechanism for
oversight of managers”. Furthermore, Lei G. & Song S. (2008)
aimed to examine the influences of board composition and
ownership structures on the firm performance. Their paper in-
dicated that a strong positive relation between the level of own-
ership and performance .While no strong relation was found
between the inside directors or level of managerial ownership
and profitability in continental European companies. Hu (2012)
contended that the board must oversee blind expansion and
assertive behavior of the management. Based on a framework
composed of structural, ownership, expertise, and prestige
power of the board, Stephen V. Horner (2010) contributes to
the role of agency theory in explaining corporate governance by
extending upper echelons thinking to the study of boards. Zhou
et al. (2013) believed that board of directors has different pro-
fessional background, work experience and professional train-
ing, so they have a broader perspective to solve problems. The

Y. LIU, Y. Q. WANG
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19
board can act as a strategic role in strategy formulation to check
managerial opportunism. If corporate governance is in place,
the management will make optimal strategic policies and end
up making sub-optimal strategies, which can lead to sustainable
competitive advantage (Luke H. Cashen, 2011). Large board
size gives the firm a competitive edge in different fronts rang-
ing from more expertise, experience, resource corporate strate-
gy and provision of broad services. So, corporate governance
structure can be a resource for the firm. Raheja C. G. (2005) re-
searched optimal board size and composition under various
conditions (the type of industry and industry characteristics).
When the probability of passing bad projects is low, bad pro-
jects could directly affect the performance of the firm. There-
fore, board size and composition could affect the performance
of the company. Bello Lawal (2012) found that It is logical to
first identify if board size affects quality of corporate board
decision before moving further to ascertain whether such board
decision has impact on firm performance (Board Size →
Quality Decision → Firm Performance). Some studies (Mak
& Yuanto, 2003; Haniffa & Hudaib, 2006; Garg, 2007) favor
smaller board sizes. However, (Abidin et al., 2009) and Sulong
& Nor, 2010) favor large board sizes, (Dwivedi & Jain, 2005;
Jackling & Johl, 2009) support large board size.
Francoeur et al. (2012) asserted that large shareholders have
strong incentives to manage earnings upward prior to stock-
financed transactions to limit the dilution of their controlling
position. Through mergers and acquisitions, Sarkar et al. (2000)
found that the controlling shareholder improved the value of
non-listed companies. In order to supervise managers, large
shareholders involved in business management, so agency con-
flicts between managers and shareholders can be alleviated.
Goranova et al. (2012) found that the second and the third larg-
est shareholder’s stake will constraint the largest shareholder,
and improve corporate governance efficiency. Silveira & Dias
(2010) analyze the impact on market value of news about con-
flicts of interest between controlling and minority share-holders.
They suggest that the actions of controlling shareholders that
hurt minority shareholders are perceived as value destroying in
a significant way. Minority shareholders may sell their stock
with large losses and walk away. In firms with concentrated
ownership, conflict of interest also exists between controlling
owners (or block holders) and minority shareholders (Fan &
Wong, 2005). Institutional investors are found to improve the
quality of corporate governance in financial reporting in cases
where other important governance factors exist. Ben-Amar,
Walid, & Paul Andre (2006) found that maintaining harmo-
nious corporate relationship with each stakeholder is of high
strategic importance to the company and the delivery of success
in the marketplace as well as the ability to add value for firms.
Mehrdad Alipour & Hossein Amjadi (2011) investigated the
effect of ownership structure on performance of listed compa-
nies in Tehran Stock Exchange. Findings indicate that there is
significant and negative relationship between “the amount of
ownership of biggest shareholder” and firm performance, while
“the amount of ownership of five greater share-holders” has
positive effect. Besides, the relationship between “the amount
of ownership of institutional shareholders” and “the amount of
ownership of managerial shareholders” is significant and nega-
tive.
Chairman-CEO duality is defined in respect of one person
heading both the Management and the Board. Masulis et al.
(2007) concluded that Chairman-CEO duality in different in-
dustries have different effect on the acquisition of wealth. The
papers have been divergence about CEO duality and the effect
of firm performance. The results ra nges from positive (Coles et
al., 2001) to negative and mix findings (Heracleous, 2001;
Adams et al., 2005). Raluca-Georgiana (2013) use data of list-
ed Romanian firms from the Bucharest Stock Exchange, and
analyze the relationship between CEO duality and performance
(ROA or ROE). Empirical findings indicate that CEO duality is
positively related with performance. He concluded that the
integrity of information available to board is compromised with
CEO duality due to asymmetric as CEO determines what kinds
of information are brought to board attention. Saibaba, M. D.
(2013) examines the impact of board independence and CEO
duality on the valuation of companies listed in BSE 100 index.
The paper results show that CEO duality do not have a signifi-
cant impact on firm valuations measured by Tobin’s Q. The
study also indicates that the firms with large board sizes have
better valuation in the Indian context.
Wang Kun and Xiao Xing (2005) showed that, in the listed
companies with the institutional investors in China, the amount
of funds used by related parties was significantly lower, and the
correlation between the share proportion held by institutional
investors was significant negative. Yingzhao Li & Jian Wei.
(2011) classifie institutional investors into three types based on
their investment behavior, and respectively research their in-
fluences to major shareholders’ benefits transportation. Their
paper indicates that, for their interests, active and passive insti-
tutional investors can effectively inhibit the benefits transporta-
tion behavior of large shareholders. And securities investment
funds are the larger, higher shareholders in the company, which
makes them not able to inhibit the benefits transportation beha-
vior of large shareholders, even have “conspiracy” tendencies
with the substantial shareholders.
From the above literatures, we can conclude that there is no
exact answer to the relationship between the corporate gover-
nance and performance. Similarly, the relationship between
M&A performance and ownership structure is still ambiguous.
The relationship may be either positive or non-existent.
The Real Estate Industry
The real estate is such kind of industry which is engaged in
various economic activities such as development, investment,
intermediary services, property management, rental and sales
along with the links of production, circulation and consumption.
The real estate, under the title of “GDP barometer”, is sensi tive
to business cycle. There are three categories of real estate no-
wadays in China, the development, intermediary services and
property management. The development of the real estate main-
ly involves in property and land development. The intermediary
services aim at providing intermediary services for property
circulation, including real estate brooking and appraisal. The
property management aims at providing support for building,
equipment and landscaping and services for security a nd clean-
ing. The real estate development is the head and front of real
estate industry in China.
The motive for merge and acquisition in China as follows:
1) The obtaining of land resources
Land is essential and indispensable for the real estate. How-
ever, the land resource is limited, with the increasing growth of
population and the sustainable economic development, the
scarcity of land resources becomes more apparent. The contra-

Y. LIU, Y. Q. WANG
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20
dictions among population, economy and land resources are
inevitable, which result in the rise of land price. In the mean-
while, the Chinese government monopolizes the supply of land
resources, the price, quantity, structure and direction of land
supply will have influence on the development of real estate.
In recent years, the policies of credit, land and taxation car-
ried out by government that meant to keeping down the housing
price, also has effect on the cost for the real estate enterprises to
hold land. Driven by these policies, the gap between the small
and medium size real estate enterprises and the big one would
widen, and some of those SME are doomed to be swallowed.
The merge and acquisition of among the real estate business is
imperative. The improvements made by the government in the
land market also worsen the problem of the scarcity of the land
resources. The land prices continue to rise, which imposes
greater burden on the real estate companies. The large real es-
tate enterprises could seize more land resources, lower the ac-
quisition cost, expand their business and increase market share
through the merge and acquisition of the small and medium size
companies.
2) Expand new financing channels
The debt-to-assets ratio of real estate companies is generally
high in China. Under the mode of operation on borrowings, the
ability of fund procurement determines the maintenance of fund
chain and influences the overall development of the real estate
enterprises. And the back loan would be the most significant
source of the industry fund. Now, there are still some rough
edges in the real estate financial market system, the financing
channel, especially the small and medium size companies re-
stricted by their own conditions, is simple. Therefore, it’s diffi-
cult for those kinds of companies to finance through IPO as
they are more dependent on the back loan. However, by means
of selling enterprises land and projects, seeking the opportuni-
ties to cooperate with others, the small and medium size com-
panies could find the “short cut” to expand financing channels
and free themselves from the constraints of capital.
3) Macroscopic regulation of government
As macroscopic regulation of government, the real estate
business capital chain is day by day tight. Industry competition
and potential operational risk lead to M&A of real estate com-
panies, besides, and M&A achieves multiple business areas.
Mergers and acquisitions have become an approach of risk
diversification, and steady income. Real estate enterprises de-
sire to expand non-residential business, such as commercial real
estate, tourism projects and the traditional projects, which be-
come an important means to resist risks.
4) Horizontal competition
Horizontal competition means the controlling shareholder or
actual controller of listed companies engaged in the same or
similar business, which may l ead to compete with own business.
Chinese law prohibits horizontal competition in the real estate
industry, in fact there is still horizontal competition, and from
now on we should solve it. M&A is the most effective method
to eliminate competition. So, M&A reaches the aim of resource
integration. Mergers and acquisitions can achieve economies of
scale and further enhance its core competitiveness of the real
estate business, which is in line with the long-term corporate
strategic planning and protect the interests of minority share-
holders and the long-term development of enterprises.
5) Corporate real estate
A feature of China’s real estate enterprises about the number
and scale: many small and medium real estate companies, but
large real estate companies are relatively small. On the one
hand, the acquired company can retain high-quality resources,
loyal customers, good reputation, and other valuable advan-
tages through the acquisition, which lay the foundation of new
market areas. On the other hand, M&A helps the acquirer to
help enterprises enter new markets and avoid problems, so that
enterprises can adapt to the new market environment with the
fastest speed. Through mergers and acquisitions, the entire
industry will integrate resources and improve the efficiency of
resource use. What’s more, M&A improves the degree of mar-
ket concentration and expand business scale, which improve the
overall competitiveness of the real estate.
The above characteristics affect corporate governance. The
current situation of corporate governance in real estate listed
Companies. With economic development; investors began to
concern the corporate governance of listed companies. They
wanted to the board to make more accurate investment deci-
sions. In the current circumstances of real estate listed compa-
nies, the characteristic of corporate governance as follows: First,
the board size: The board size of listed real estate companies
have reduced from the initial board size 16 - 28 people to 10 -
17 people, but there is still a gap compared with the optimal
board size 7 - 9 people. The stakeholder theory and enterprise
value maximization theory are familiar to us, so the number of
Chairman-CEO duality is small. Second, the ownership struc-
ture: ownership structure can be subdivided into ownership
attributes and ownership concentration.
In ownership concentration, the shareholding ratio of large
shareholders is still at a high level. The average proportion of
the largest shareholder is 40%, while the top ten shareholders
are less than the largest shareholder’s stake, so the dominance
of the large shareholder is quite serious.
In addition to the largest shareholder, the second largest
shareholder and the second to the tenth largest shareholders
cannot form an effective check and balances, that is to say, the
first major shareholders have absolute power.
Hypothesis
As aforementioned, the analysis of existing literatures im-
plies that:
1) Check-and-balance Ownership Structure helps resolve the
agency problems and improve the firm’s performance.
2) If board size increases, board become less effective and
increases decision-making time.
3) There is influence CEO duality On the M&A performance.
4) Institutional investors may affect the decision of board and
long-term performance.
Different aspects of board structure, comprising board size
and CEO duality, have become influential factors in the imple-
mentation of effective corporate governance of firms. However,
the previous literatures have been showed mixed evidence
about the factors. Therefore, the paper comes into sight to an-
swer the above questions and put forward four hypothesizes.
Ownership Control and Enterprise Performance
Controlling shareholders have the incentives and power, with
a large proportion of voting rights, to pursue their personal
interests at the expense of minority shareholders (Wang Lijun,
2008; Fu Qiang, 2012). In fact, minority shareholders are diffi-
cult to fully understand the internal operation, because Chinese

Y. LIU, Y. Q. WANG
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21
market rules and regulations are imperfect. The alignment ef-
fect dominates the entrenchment motives and acts as a deterrent
mechanism to prevent controlling shareholders from managing
earnings in M&A. In state-owned enterprises, government will
intervene in the company’s decision. But the corporate internal
governance structure will affect the realization of government.
When the controlling shareholder’s stake is higher, the ability
of obtaining private benefits of control is higher, but they must
bear the most of the losses and make its motivation of obtaining
private benefits diminished. Therefore, the controlling share-
holder in a lower shareholding, the motivation of merger and
acquisition further deviate from the goal of profit, while con-
trolling shareholder has a higher motivation of profit when at a
higher stake. Therefore, the paper puts forward the first hypo-
thesis: xinlunwen68.
Hypothesis 1: Under the lower shareholding, mergers and
acquisitions’ performance is negatively related to the control-
ling shareholder’s ownership; under the higher stake, mergers
and acquisitions’ performance is positively related to the con-
trolling shareholder’s stake.
Board of Di r ectors an d Corpor ate Performance
The performance affected by the company’s characteristics
and the board micro decision-making mechanisms. The role of
directors in corporate governance is strategic, monitor and con-
trol. The larger board members lead to communicate weak,
allowing limited control of the management. Bedsides, trust
and understanding between directors will be reduced. In China,
the state-controlled real estate company has strong political
overtones, so leaders’ decision is important. For private listed
companies, board members have close personal relationship
with controlling shareholder, so board members will not cast
opposing votes. Board size affects the quality of deliberation
among members and ability of board to arrive at optimal cor-
porate decisions. The board size represents the total head counts
of directors seating on the corporate board. Majority of docu-
mented evidences have demonstrated that small boards are
more efficient and effective. Taking into account the above
equivocal findings, therefore, the paper puts forward the second
hypothesis:
Hypothesis 2: the Board size is negatively related to Perfor-
mance of M&A.
Institutional I nvestors and Corporate Performance
Institutional investors mean that professional and indepen-
dent investment as a corporate shareholder. One branch of the
literature is consistent with institutional investors being better
monitors than investors in general, which found that there is a
positive correlation between the number and the percentage
ownership of institutional investors and operating performance
of large firms. In the mature capital markets, institutional in-
vestors have a strong impact on the enterprise. The minority
shareholders have certain options to dig enough information
and analyze the trend of company. But, due to legal constraints,
institutional investors in the company’s business decisions
cannot play a direct role, who cannot act as the big shareholder
in firms, so institutional investors have no strong motivation to
care about the development of enterprises. Moreover, institu-
tional investors tend to adopt a diversified investment strategy
in order to avoid investment risks. Investment diversification
reduces the enthusiasm of institutional investor to supervise the
board. Now in China, the financial market is the lack of inde-
pendence, and participants of the stock market are not mature.
Besides, the insider trading is often exposed to the public. The
relevant legal and rule is imperfect and incomplete, which leads
to institutional investors conspire with the management for
their own interests. Therefore, the paper puts forward the third
hypothesis:
Hypothesis 3: Institutional investors are negatively asso-
ciated with the long-term performance of M&A.
Chairman-CEO Duality and Enterprise Performance
To our knowledge, in China’s national conditions, the gener-
al manager has a good personal relationship with the president
in private enterprises, especially the family company. While in
the state-owned enterprises, the chairman and general manager
are appointed by the relevant government departments. In the
state-owned enterprises, Chairman-CE0 duality avoids replac-
ing good CEO for some abnormal causes. CEO duality pro-
vides the company with a leadership core, and brings clear cor-
porate strategy and mission. When companies are in fierce
competition, decisive decision-making and clear strategic orien-
tation help companies make acquisitions decisions in time.
Accordingly, CEO duality would make the firm more stable
and sustainable, which will lead to improve corporate perfor-
mance. Therefore, the paper puts forward the fourth hypothesis:
Hypothesis 4: Chairman-CEO duality has significant impact
on the on the M&A performance.
Data Selection and the Analysis Model
Sample and Variable Selection
Selecting significant events of M&A which happened in the
real estate companies listed on the Shanghai and Shenzhen
stock exchanges from 2008 to 2009, we obtain the resulting 36
samples of enterprise merger and acquisition. Excluding condi-
tions as follows: 1) excluding acquisitions failed samples; 2)
Excluding ST, * ST listed companies; 3) exclude the delisting
of the company in 2008-2012; 4) the payment is less than 5%
of acquirer company total assets.
In order to further scientific suitable empirical analysis, we
use the following specific indicators to measure performance
and some variables. The data of Table 1 come from CSMAR
database. CSMAR means database of financial data and mar-
keting data of China capital market. CSMAR database includes
all financial data and marketing data of A-share listing compa-
nies in Shanghai Stock Exchange and Shenzhen Stock Ex-
change since 1990. In the regressions, purchase costs and em-
ployee value are measured as ln(fees paid to acquire) and
ln(total Assets in 2007/employee number in 2007), respectively.
Tobin’s Q: Tobin’s Q = (Market value of the firm + Book
value of the debt)/Book value of total assets. Market value of
the acquiring firm’s assets divided by book value of its assets
for the fiscal year prior to the acquisition. The market value of
assets is equal to book value of assets plus market value of
common stock minus book value of common stock minus bal-
ance sheet deferred taxes. Tobin Q is used as indicators of per-
formance, which takes goodwill, patents and other intangible
assets into account. Tobin Q measures company’s future cash
flows and discounted value.
CEO duality: Chairman-CEO duality has been considered as

Y. LIU, Y. Q. WANG
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22
Table 1.
Variable definition table.
Variable Index Symbol Definition
Dependent
variable Market Value TBQ Tobin’s Q
Explanatory
variables
Board size BS Directors number in 2007
annual report
Shareholders’ degree SD
2007 annual report, the
three major shareholding/
the largest shareholder
proportion
Institutional investors II 2007 annual report disclosure of the fund’s
holdings and/ Fun d number
Chairman-CEO duality CC Chairman and general manager are the same
person, dummy varia bl e
Control
variables
Time to market TM Companies listed on the relative value of time to
2008
Purchase shares PS the shares of the Target
Company
Purchase costs PC ln(Fees paid to acquire
shares)
Cost per CP Purchase price/purchase
shares
Employee value EV ln(2007 Assets/2007
number of employees)
a dummy variable in the regressions. “1” has been given to
firms having CEO non-duality and “0” Otherwise.
Firms’ ability: As a measure of firm size, we used the num-
ber of employees and total assets, taken at before one year of
the M&A. The number of employees and total assets are always
expressed in logarithm terms.
Firm’s age: We measured the age of the firms, from being a
listed company, at the year of the M&A.
Target size: The acquisition of a company with a large vo-
lume of assets or number of employees is characterized with
high levels of complexity and more diverse product portfolio,
so integration procedures and routines will differ from those for
small targets, increasing risks and uncertainties. Besides, the
value of target firms in large M&A can be more difficult to
capture than in small one (Ellis et al., 2011).
Statistical Description and Correlation Analysis
In this paper, the date is analysis by statistical software
(SPSS20.0 and EVIEWS6.0). First, we analyze the data with
descriptive statistics. Second, we analyze the correlation of
variables. In the end, assumptions are tested by the multiple
regression models.
Table 2 shows statistical description of each variable, in-
cluding mean, median, minimum, maximum and standard devi-
ation. The Chairman-CEO duality is a dummy variable. CC = 1,
if the chairman and the CEO are the same one; CC = 0, other-
wise. From Table 2.
Table 3 shows the correlation between each variable and all
the variables. It is easy to see that the value of the company in
2011 with 2007 employees get the highest correlation coeffi-
cient reach to 0.474. The low correlation coefficient among
Table 2.
Descriptive statistics.
Variable Mean Median Maximum Min SD
TM 14.830 15.500 19.000 4.000 2.920
II 0.5300 0.390 1.760 0.000 0.719
PS 56.34 55.00 100.00 5.080 35.86
PC 7.960 7.930 8.960 6.690 0.650
EV 4.068 4.013 6.107 2.505 0.911
CC 0.110 0.000 1.000 0.000 0.320
BS 8.440 9.000 11.000 5.000 1.560
SD 1.511 1.386 2.562 1.022 0.436
TBQ 1.250 0.980 3.100 0.680 0.620
Table 3.
Correlation coefficients.
Variable TBQ II TM EV PS CC SD BS
TBQ 1
II −0.42 1
TM 0.286 0.037 1
EV 0.474 −0.018 −0.108 1
PS 0.11 −0.404 −0.398 0.292 1
CC 0.339 0.127 −0.144 0.358 0.16 1
SD 0.12 −0.078 −0.098 0.078 0.127 0.13 1
BS −0.828 0.191 0.054 −0.976 −0.382 −0.55 −0.158 1
independent and control variables and acceptable variance in-
flation factor statistics suggest that multicollinearity of va-
riables is not a problem in our model.
Model Results
To test four hypotheses, this paper uses the OLS model as
follows:
Model A: check-balance ownership structure and Tobin’s Q
123 45
67
=+ SD TMEVC
TBQ
P PS
CC PC
+β ×+β×+β ×+β ×
+ β×+β
∂
×
β×
+ε
Model B: board size and Tobin’s Q
123 45
678
+
TBQ
S TMEVCP PS
CC PC
B
PBS
=+β ×+β×+β ×+β ×
+β×+β×+β×
∂ β×
+ε
Model C: Institutional Investors and Tobin’s Q
234
67
1 5
+
TBQ
II TMEVCP PS
CC PS
=+β ×+β×+β ×+β ×
+β×+β
∂
×
β×
+ε
where:
∂
: Constant.
βi: the coefficient of each variable.
ε: residu al.
The results are shown in Table 4.

Y. LIU, Y. Q. WANG
Open Access
23
Table 4.
The model of multiple linear regression results1.
Variable Model A Model B Model C
C 1.257 10.423 0.984
(−1.027) (−4.207) (−0.812)
SD 0.287
(−1.461)
BS −0.585
(−4.168)
PBS −3.087
(−3.903)
II −0.197
(−1.709)
TM 0.091 0.076 0.086
(−3.145) (−3.173) (−3.047)
EV 0.230 0.123 0.245
(−2.309) (−1.370) (−2.503)
CP −0.832 −1.032 −0.803
(−1.984) (−2.972) (−1.964)
PS −0.010 −0.010 −0.009
(−2.566) (−3.333) (−2.375)
PC −0.250 −0.179 −0.157
(−1.877) (−1.633) (−1.225)
CC 0.605 0.471 0.671
(−2.163) (−2.010) (−2.414)
R-squared 0.528 0.691 0.540
F-statistic 4.474 7.544 4.695
DW 1.861 1.987 2.231
As can be seen from Table 4, in these three variables, T-sta-
tistic is statistically significant at a 95% confidence level.
What’s more, goodness of fit well reflected the reality. Mean-
while DW test value is around 2.0, avoiding multicollinearity
and autocorrelation.
Model A shows insignificant coefficient for ownership struc-
ture, and the hypothesis 1 is supported. The check-balance
ownership structure has a significantly positive correlation. The
cooperation between the second and the third largest share-
holder will limit the largest shareholder.
The result in Model B shows that board size has significant
effects. BS negatively related to the long-term M&A perfor-
mance, which verifies the hypothesis 1 of this study. This
means that if the enterprises have larger board members, the
performance of mergers and acquisitions will be decreased.
Besides, majority interests are often easy to be captured by a
few people, so individual rationality succumb to the overall
irrationality, making compromise decisions. One would realize
that the size of board in terms of quantity is materially insigni-
ficant compared to the quality which deter mi ne s effectiveness
of corporate deliberations and decision making.
The outcome of Model C shows that Institutional investors
have positive and significant effects on M&A performance, so
Hypotheses 3 is supported. Institutional investors have negative
relationship with the long-term performance of M&A. Institu-
tional investors are tend to accomplice with the company’s
managers for their own interests.
Hypothesis 4 proposes that Chairman-CEO duality is posi-
tive related to M&A. In China’s national conditions, we can
consider that Chairman-CEO duality bring long-term perfor-
mance improvements. Empirical evidence has shown negative
correlation between the paid for the acquisition and the acquisi-
tion of long-term performance.
Robustness Test
In order to prove the reliability of the above conclusions, the
following tests as follows:
1) Refer to Shao & Yu (2012) research method about the
calculation of non-tradable shares, Tobin’s Q is calculated by
the market value in circulation 25% discount.
2) When it comes to SD, I use the total shares of top ten
shareholders replace the top three shareholders.
Taken together, the conclusions of this paper have not been
materially affected, except that an indicator (TM) is a slight
change in the significance level, so the conclusions are reliable.
Conclusions and Implications
The conclusions of the real estate industry mergers and ac-
quisitions under economic crisis give us some inspiration. Ed-
die Hui C. M. et al. (2011) found that there are positive correla-
tion between real estate market and stock market in the United
Kingdom and in Hong Kong, from 1993 to 2007. The paper
explains the similarities by two transmission mechanisms:
wealth effect and credit-price effect. To analyze the influence
of corporate governance on long-term performance of M&A
transactions, this paper uses an empirical model. With the de-
velopment of the security market and the growing power of the
enterprises, the M&A is becoming increasingly popular. There
is a misunderstanding in the mergers and acquisitions of listed
companies in China which is in order to mergers and acquisi-
tions and to mergers and acquisitions, and there is very little
detailed analysis to the predicted results after mergers and ac-
quisitions, which led to a doubt of creating value to mergers
and acquisitions as theoretically speaking. Many scholars own
different opinions to the thing that whether it can create value
for our listed companies in mergers and acquisitions. So basi ng
on the previous studies, this article researches the performance
of the mergers and acquisitions of listed companies, which will
own an important practical significance.
Through practical studies and analysis, following conclu-
sions could be summarized from this thesis: These results sug-
gest that the concentrated ownership alignment effect domi-
nates the entrenchment motives and acts as a deterrent mechan-
ism to prevent controlling shareholders from managing earn-
ings in stock-financed M&A. Besides, State-owned enterprises
should take full advantage of social market economy, improv-
ing their own internal checks and balances and the equity vot-
ing sys tem.
The Board inefficient results in the failure of bringing bene-
fits to the company, taking the limitation of the rights and in-
terest of independent directors into account who fail to play
their roles. In China’s financial markets, institutional investors
1Unstandardized coefficients are shown, with standard errors next to them.

Y. LIU, Y. Q. WANG
Open Access
24
who engage in speculative activities will spare no effort in
pushing stock prices up for their own interest.
The paper has several implications for managerial practice.
Notably, it suggests that the company that intends to perform
acquisition with the aim of company value must take care of the
decisions. Moreover, investors can predict or prevent some
risks by valuing firm’s some characteristics such as board and
CEO duality. Linda M. Cohen (2010) pointed that better under-
standing how physical asset decisions can affect M&A out-
comes, and how these assets can be used as a powerful tactical
and strategic resource, will help managers achieve desired out-
comes when faced with M&A.
There are some limitations in this paper: 1) the lack of con-
trast to the company that did not merger other firms; 2) the
failure of giving a full consideration of the all the factors that
may influence the performance, such as organizational structure,
marketing. It would be much better for me to improve this pa-
per with the help of questionnaire survey.
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