Managements' corporate growth beliefs and M&As – Evidence from China

Abstract

The beliefs held by decision-makers affect their economic behavior. Do beliefs in corporate growth held by listed companies’ management teams affect their execution of mergers and acquisitions (M&As)? We use M&A event data for Chinese Shanghai and Shenzhen A-share listed companies from 2014 to 2021. Words (phrases) related to capital operations in listed companies’ site visit summary reports are employed as a proxy variable for the beliefs in corporate growth held by the management of these companies. We explore the relationship between managers’ beliefs in corporate growth and their M&A activities. The results indicate that the stronger are managers’ beliefs in corporate growth, the more likely these managers are to expand through M&A activities, the more willing they are to pay a premium in M&As and the better their M&A performance is. In addition, beliefs in corporate growth impact the goodwill generated from M&A activities. We provide new empirical evidence from an analysis of the nonrational factors underlying M&A activities.