Do the ties of corporate executives and directors affect short-term M&A return growth? Evidence from China

Linyu Wang, Zhangzhe Shen, Ardjouman Diabate and Liying Yu

Economic Research-Ekonomska Istraživanja, 2023, vol. 36, issue 1, 2080731

Abstract: This article investigates whether the social ties of corporate executives and directors affect short-term return growth during the announcement period of mergers and acquisitions (M&A). We consider both the educational background and employment history of the corporate executives and directors to measure social ties. Specifically, a text analysis algorithm is employed to match employment history. Then, we choose the cumulative abnormal returns to measure the short-term return growth. Using a sample of 157 M&A deals in the Chinese market from 2000 to 2017, we find that acquirer-target social ties have a significantly negative effect on post-merger performance. However, the negative effect of social ties on post-merger firms’ short-term returns will decrease (become less negative) when the firms have good corporate governance mechanisms. Moreover, social ties could also affect the retention of the target firms. The executives and directors are more likely to remain in the post-acquisition firm when the social ties are high. Our results have important implications for policymakers and corporate governance.

Date: 2023
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DOI: 10.1080/1331677X.2022.2080731

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