Control transfer and old shareholder governance of the “seller”: who hinders the management retention?

Abstract

Purpose Under the background of China’s initial public offering approval system, the buyer may acquire the listed company more for the purpose of obtaining listing qualification, and the operation performance of target company may not be the main motivation for evaluating and replacing the management, which may breed the self-interest motivation of the management to collude with the buyer to lower the price to continue to stay in office. Further, if the management and the buyer collude successfully and achieve retention by reducing the transfer price of control and sacrificing the interests of the “seller,” it is worth discussing whether the old shareholders of the “seller” existing in the firm can prevent the self-interest management from continuing to remain in office through effective corporate governance mechanism. Design/methodology/approach Taking A-share listed companies with control transfer from 2000 to 2017 as sample, this paper investigates the strategy, path and retention consequence of the target company’s market selected top management who collude with the new controlling shareholder to avoid the risk of being taken over by control transfer. Findings This research explores that negative earnings management behavior may reduce the real premium of control transfer after deducting the “shell value.” The lower the real premium of control transfer after deducting the “shell value,” the higher the probability of management retention after control transfer. This paper also reveals that the real premium of control transfer after deducting the “shell value” plays complete mediation role between the negative earnings management behavior of the management and their own retention. The mediation effect of “collusion and price reduction” in the control transfer will be inversely moderated by the governance mechanism of noncontrolling shareholders including the old shareholders of the seller. Originality/value This paper not only constitutes a supplement to the existing literature but also provides empirical evidence for standardizing the control transfer behavior of listed companies, and making good use of the old shareholders of the seller to improve corporate governance and alleviate agency conflict after control transfer.