The governance effects of social media engagement on M&A outcomes: Evidence from China

This paper examines the governance effect of minority shareholder social media engagement on merger and acquisition (M&A) outcomes. First, using a sample of Chinese M&A and social media discussion data from the EastMoney stock message board, we find that minority shareholder social media engagement is positively associated with the acquiring firm’s value after an M&A transaction. This result holds after a series of robustness tests. Second, mediation analyses reveal that social media engagement enhances postmerger firm value by curbing the entrenchment incentives for insiders to set high premiums and use private placement financing in M&As and by reducing management’s agency motive in the integration stage. Third, we find that minority shareholder social media engagement on M&A-specific topics, compared with overall engagement, has a stronger governance effect that further improves M&A outcomes. Finally, minority shareholder social media engagement further reduces the probability of M&A failure and shortens the time to completion. These results provide evidence of the governance role of minority shareholder activism on social media in China, which could help to address the value-destroying and encroachment problems associated with agency-motivated M&As.