Study on the Impact of the Quality of Internal Control on the Performance of M&A

Abstract

In order to examine whether the internal control quality affects the M&A performance (stock market return and accounting return) of acquiring firms after the Chinese SOX (Sarbanes-Oxley Act) issued, we select 126 mergers and acquisitions (M&A) deals of Chinese non-financial listed companies on Shanghai and Shenzhen Stock Exchange in 2010 from the CSMAR (China Securities Market & Accounting Research) Database. And we use content analysis to construct a score to quantify the internal control quality of Chinese listed companies. We examine the relationship between the quality of internal controls and the performance of bidding firms with event study and multivariate regression analysis. Our results indicate that the internal control quality of acquirers is positively related to the accounting rates of firms. The higher quality of internal control means that acquirers with better internal control system would be more likely to benefit from M&A activities and create more value for the their own companies and shareholders. Another result is that investors on the stock market are more optimistic about M&A activity lauched by firms which enjoy higher ICQS (the Internal Control Quality Score).

Exploration of Transnational Merger and Acquisition Decision Based on Risk Control

“…Western developed countries have developed a large number of large scale enterprises through merger and acquisition and controlled a large number of market share worldwide. With the development of economic globalization and China's entry into the World Trade Organization, Chinese enterprises will face fierce competition from transnational enterprises (Leng and Zhao, 2013). At the same time, many enterprises have established the goal of international development, expecting to expand overseas.…”