Non-controlling shareholders’ network and the reliability of merger and acquisition performance commitments: Governance or collusion?

• Published in: Finance research letters 2025-01, Vol.71, p.106431, Article 106431
• Main Authors: Fu, Shaozheng, Yang, Jinkun
• Format: Article
• Language: English
• Subjects: Corporate governance; Merger and acquisition; Network centrality; Non-controlling shareholders; Performance commitments
• ISSN: 1544-6123
• DOI: 10.1016/j.frl.2024.106431

•Non-controlling shareholders’ network improves the reliability of M&A performance commitments.•Network is constructed through shareholder's common ownership linkage.•Reducing M&A premium and restraining insider shareholding reduction are the mechanisms.•An important theoretical perspective on understanding equity structure network.•Network is a supplementary way to shareholder's supervision and self-protection. This study examines the effect of non-controlling shareholders’ network on the reliability of performance commitment (PC) agreements signed during merger and acquisitions (M&A), based on A-share listed companies in China during 2008–2022. Findings indicate that higher non-controlling shareholders’ network centrality is significantly associated with an increased PC reliability. Mechanism tests reveal that this correlation is driven by the network's embedded advantage to reduce M&A premiums and curb insider shareholding reduction. Furthermore, this study highlights that the networks of pressure-resistant institutional investors, non–state-owned legal entity shareholders, and individual investors play crucial roles in enchaining PC reliability.