Based on the special environment of China’s transition economy and the background of “relational” social system, taking 2010-2017 China’s A-share listed companies which are the merging party as a sample, this paper empirically studies the influence of CEO alumni relationship between M&A parties on M&A performance, CEO retention, CEO compensation, and whether M&A is divestiture. Alumni relationship defined in this paper refers to the social relationship between CEOs of M&A parties based on higher education. It is found that although alumni relationship can quickly break the barriers of information communication and reduce information asymmetry, decisions based on alumni relationship rather than rigorous analysis may lack due prudential standards in the selection process of the target company due to familiarity bias and trust bias. The alumni relationship between the CEO of the merging party and the CEO of the merged party will lead to wrong M&A decisions and lower shareholder returns, significantly reducing the merger announcement date [-2, +2] time window of the merging company’s stock cumulative abnormal return rate, but increasing the possibility of being retained by the merged CEO and the remuneration of the CEO of the merging company; enterprises with alumni relationship between the CEOs of both sides are more likely to have M&A, but the probability of asset divestiture is higher in such M&A, and even divestiture is difficult to improve performance.
The possible contributions of this paper are as follows: Firstly, it adds the literature about the influence of the relationship between the CEO alumni of the merging party and the merged party on the decisions and effects of M&A, complements the theoretical research on the agency problem in enterprise M&A, and helps to enrich, expand and deepen the research on the existing M&A theory in China. Secondly, it explores the path of the influence of alumni relationship on economic decisions, expands the research scope of social relationship, clarifies the influence of CEO alumni relationship between the merging party and the merged party on M&A effects, and confirms that although the CEO alumni relationship between the merging party and the merged party plays a positive role in reducing information asymmetry, it may lead to the agency problem that the CEOs of both sides conspire to infringe the interests of shareholders due to the alumni relationship, which makes the merger decision beneficial to the CEOs and unfavorable to shareholders. Finally, it systematically analyzes the influence of alumni relationship on M&A decisions and effects, which is conducive to the rational use of social relationship resources among enterprises and reducing the agency problem in M&A, and provides theoretical support and verified evidence for standardizing the scientificity and prudence of M&A decisions and improving M&A performance.