CEO Power, Corporate Governance, and Merger and Acquisition Performance: A Study of Emerging Market Firms

Abstract

The frequency of mergers and acquisitions (M&A) has increased in emerging market economies like China. Corporate governance elements such as CEO duality, the board size, board independence, and board diversity strongly impact M&A effectiveness. Yet, it is unknown how these qualities influence the M&A performance of emerging market corporations. This study aims to determine how these corporate governance factors influence M&A success in Chinese firms, and the mediating and regulatory roles organizational culture and company age play. Using a sample of 350 Chinese firms, we find that board size, independence, and diversity positively affect M&A success, whereas CEO duality has a negative effect. In addition, we find that the relationship between CEO duality and M&A success is mediated by organizational culture, indicating that firms with robust organizational cultures are less susceptible to the negative impacts of CEO duality on M&A performance. In addition, we find that organizational culture modulates the relationship between board diversity, independence, and M&A performance. According to our research, companies with good organizational cultures are more likely to benefit from larger, more independent, and more diverse boards. Lastly, firm age moderates the relationship between board diversity and M&A performance, indicating that board diversity positively impacts M&A performance in older organizations. These findings have substantial implications for businesses and decision-makers attempting to improve M&A success in developing nations like China. According to our analysis, businesses should endeavor to improve their organizational cultures to mitigate the negative consequences of CEO duality and reap the benefits of having larger, more diverse, and independent boards. Our analysis also stresses the need to consider firm age as a potential moderator when designing corporate governance frameworks to improve M&A efficiency. Our work contributes substantially to the academic literature by providing novel insights into how corporate governance features influence M&A performance in developing market firms.