TY - JOUR
T1 - Use of comment letters for mergers and acquisitions in a setting with weak investor protection
T2 - the Chinese experience
AU - Lyu, Kefu
AU - Wu, Huiying
AU - Ying, Sammy Xiaoyan
AU - You, Jiaxing
N1 - Publisher Copyright:
© 2024 Elsevier Inc.
PY - 2024
Y1 - 2024
N2 - We adopt a principal–principal perspective to examine whether comment letters for mergers and acquisitions (M&A) protect shareholders, particularly minority shareholders, of acquiring firms in China, where investor protection is weak. This public enforcement tool has several features: (i) regulators provide detailed comments on various matters, (ii) various stakeholders are called upon to respond, and (iii) failure to adequately address the comments to the satisfaction of regulators results in M&A applications being rejected. Our main results show that M&A comment letters affect the outcome of M&A transactions by reducing acquisition premium and improving the fulfillment of performance commitment. Furthermore, this effect is more pronounced when the principal–principal conflict is more severe, as indicated by a greater divergence between cash flow rights and control rights, along with weaker monitoring by multiple large shareholders. Our results suggest that M&A comment letters, if used appropriately, effectively enhance investor protection in less developed economies. We contribute to the literature by providing new evidence of the effects of M&A comment letters in settings with weak investor protection.
AB - We adopt a principal–principal perspective to examine whether comment letters for mergers and acquisitions (M&A) protect shareholders, particularly minority shareholders, of acquiring firms in China, where investor protection is weak. This public enforcement tool has several features: (i) regulators provide detailed comments on various matters, (ii) various stakeholders are called upon to respond, and (iii) failure to adequately address the comments to the satisfaction of regulators results in M&A applications being rejected. Our main results show that M&A comment letters affect the outcome of M&A transactions by reducing acquisition premium and improving the fulfillment of performance commitment. Furthermore, this effect is more pronounced when the principal–principal conflict is more severe, as indicated by a greater divergence between cash flow rights and control rights, along with weaker monitoring by multiple large shareholders. Our results suggest that M&A comment letters, if used appropriately, effectively enhance investor protection in less developed economies. We contribute to the literature by providing new evidence of the effects of M&A comment letters in settings with weak investor protection.
KW - China
KW - Comment letter
KW - Countries with weak investor protection
KW - Mergers and acquisitions
KW - Public enforcement
UR - http://www.scopus.com/inward/record.url?scp=85196288491&partnerID=8YFLogxK
U2 - 10.1016/j.jaccpubpol.2024.107227
DO - 10.1016/j.jaccpubpol.2024.107227
M3 - Article
AN - SCOPUS:85196288491
SN - 0278-4254
VL - 46
JO - Journal of Accounting and Public Policy
JF - Journal of Accounting and Public Policy
M1 - 107227
ER -