Stock Price Volatility, Equity Balance and Corporate M&A

Agency theory believes that companies, when facing uncertainty, usually intend to make over-investment decisions. This is because managers can attribute investment failures to external reasons rather than personal ability factors. In order to explore this possibility, this paper uses the data of Shanghai and Shenzhen A-share listed companies as samples to study the impact of stock price volatility on corporate M&A. The study finds that: (1) Stock price volatility is significantly positively correlated with corporate M&A, which indicates that the greater the stock price volatility is, the higher corporate M&A tendency is, and there is no significance difference in that relationship between state-owned & non-state-owned enterprises and manufacturing & non-manufacturing industries; (2) Equity balance plays a negative moderating effect in the process of the impact of stock price volatility on corporate M&A, which indicates that a higher equity balance will help to reduce the positive relationship between stock price volatility and corporate M&A. Conversely, the lower equity balance will strengthen the positive relationship between stock price volatility and corporate M&A.