Separation of ownership from control and merger and acquisition

We construct a theoretical model to investigate how ultimate controlling owners use takeovers to extract private benefits at the expense of minority shareholders and further exam whether the separation of ownership from control results in value-destroying mergers and acquisitions empirically. We find that: First, the merger premium is higher for firms with greater separation of ownership and control in unconnected M&As and lower for firms with greater separation of ownership from control in connected M&As. Second, greater separation of ownership from control will result in lower value creation (lower CAR and lower change in operation performance). Our results are consistent with the views that the ultimate controlling owners have motivations and powers to extract private benefits at the expense of minority shareholders. Besides, we provide additional evidence to managerial agency, hubris and market timing hypotheses which interpret what drives value-destroying mergers and acquisitions.