Effects of ownership structure on the mergers and acquisitions decisions in Brazilian firms

• Published in: RAUSP Management Journal 2020-01, Vol.55 (2), p.227-245
• Main Authors: Nogueira, Nasaré Vieira, Kabbach de Castro, Luiz Ricardo
• Format: Article
• Language: English
• Subjects: agency theory; BUSINESS; Conflicts of interest; Corporate governance; Decision making; emerging economy; Global economy; Hypotheses; Investments; Literature reviews; Management decisions; mergers and acquisitions; ownership structure; Stockholders; Voting rights
• ISSN: 2531-0488; 2531-0488
• DOI: 10.1108/RAUSP-11-2018-0124

Purpose The purpose of this study is to examine the effects of ownership structure on merger and acquisition (M&A) decisions of Brazilian listed companies. Design/methodology/approach This paper is an applied and explanatory research based on secondary data. The sample is comprises non-financial companies listed on the BM&FBovespa between 1998 and 2007. Considering that the dependent variable is binary, the authors estimate panel data logistic regression models. Considering the existence of conflicts of interest among those who have the decision-making power and the supplier of capital for M&A transactions, they draw upon the Agency Theory to develop the theoretical hypotheses. Findings The results show that, for a sample of Brazilian non-financial companies listed on the BM&FBovespa (B3), from 1998 to 2007, Brazilian firms present, on average, a highly concentrated ownership structure and the major controlling shareholders are families or the State. These characteristics are negatively related to the likelihood of M&A transactions, as most of these controlling shareholders are reluctant to adopt mechanisms that reduce their control. Research limitations/implications With regard to the limitations, this study considered only the M&A definitions as stated by the Bureau van Dijk database. In this sense, future studies may analyze the effects of ownership structure based on other M&A definitions and typologies. In addition, the study is limited to the period from 1998 to 2007, which is prior to the international financial crisis. Future studies may extend the analysis period to include the post-crisis period (2008) to check if there are differences in M&A strategies before and after the crisis. Practical implications From a managerial perspective, the results show that minority shareholders have little or no influence over an M&A decision, so they cannot decide on the use of resources for fast growth and access to new markets through M&A. Thus, the investment decision must take into account the nature and the quality of the controlling shareholder. Social implications This study shows a significant and negative effect of ownership concentration on the likelihood of M&A transactions. In part, this result demonstrates the importance of understanding the behavior of controlling shareholders before inferring on other key aspects that the M&A literature tends to make fundamental in explaining M&A decisions in publicly traded companies, particularly, in an environm