The impact of agency problems on M&A performance in emerging markets

Merger and acquisition (M&A) is a method for firms to expand their organisation more rapidly than organically and a conduit for firms to expand their worldwide market position and increase competitiveness. M&A activity has expanded quickly in the 21st century, particularly in emerging countries. However, studies show that the acquiring firms did not achieve financial gain or even experienced loss post-M&A. Researchers indicate agency problems is a primary issue of corporate governance and remain a prominent issue in emerging markets that affect the M&A performance of the acquiring firms. Agency problems is divided into two categories: (1) divergence of interest between the shareholders and managers (principal-agent conflict); and (2) expropriation of minority shareholders (principal-principal conflict). The concentrated ownership structure of emerging market firms may alleviate principal-agent conflict. However, it is questionable whether mitigation of principal-agent conflict improves the M&A performance due to the presence of two sets of principals, majority shareholders and dispersed shareholders may result in principal-principal conflict. Besides, the implication of principal-principal conflict on M&A performance is unclear due to limited studies conducted and conflicting results. Additionally, researchers provide a brief discussion of the link between principal-agent conflict and principal-principal conflict without providing empirical data. Hence, this paper seeks to investigate and provide empirical evidence on the impact of principal-agent and principal-principal conflicts on M&A performance and the relationship between principal-agent conflict and principal-principal conflict. By employing multiple linear and polynomial regression analyses, results show that alleviating principal-agent and principal-principal conflicts improves M&A performance. However, the ownership concentration must be maintained at certain level to prevent the principal-principal conflict. These findings can serve as a practical guide to the firms in corporate restructuring