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FEDERAL STATE EDUCATIONAL INSTITUTION OF HIGHER EDUCATION

NATIONAL RESEARCH UNIVERSITY

HIGHER SCHOOL OF ECONOMICS

Saint Petersburg School of Economics and Management

Department of Management

Bachelor's thesis

INFLUENCE OF CEOS' PERSONAL CHARACTERISTICS ON SHORT-TERM M&A PERFORMANCE IN RUSSIA

Kulkova Viktoriia Igorevna, Zubarevich Polina Sergeevna

Academic advisor Elena M. Rogova

Doctor of Sciences in Economics, Professor

Saint Petersburg 2020



Abstract

Based on statistical data, Russian mergers and acquisitions (M&A) market is growing steadily, but not all the deals show a positive result. Taking this into account, it is crucial to understand who and what is responsible for an outcome of the transactions. The literature background shows that many chief executive officers (CEO) consider an M&A transaction as one of the most effective ways to get new assets and expand a market share of the company with further increasing performance. However, most studies analyze this field in terms of other developing countries, leaving the gap for the Russian market. This research empirically analyzes how do the CEO's personal characteristics, that describe overconfidence phenomenon, influence the outcome of the deals. Specifically, the research focuses on such personal characteristics as age, previous working experience in the relative industry, experience in acquisitions, working experience in the government, and presence of a degree in business. Developed hypotheses are based on agency theory and secondary data analysis of previous researches on the corporate governance (CG) topic. For checking the hypotheses, the event study method and cross-sectional regression analysis are used. The research involves the sample of 251 observations of M&As, collected from Thomas Reuters Eikon financial database, several different mass information sources such as TASS, SPARK and companies' official websites. The results show whether there is a correlation between CEOs' features and cumulative abnormal returns of the acquiring companies. The research contributes to the field of CG as a tool for improving a company's performance through effective M&A decisions.

Keywords: M&A short-term performance, Russian M&A market, corporate governance, CEO overconfidence, CEO's personal characteristics.



• Outline
• personal merger acquisition corporate
• Abstract
• List of Figures
• List of Tables
• List of Appendices
• List of Abbreviations
• Introduction
• 1. Literature review
• 1.1 The definition of M&A term and its classification
• 1.2 M&A waves
• 1.3 Features of the Russian M&A market
• 1.4 Factors influencing the M&A's performance
• 1.5 Corporate governance definition
• 1.6 Corporate governance mechanisms
• 1.7 Corporate governance as a factor of success or failure of M&A
• 1.8 Managerial activity as a factor of success or failure of M&A
• 1.9 The phenomenon of CEO overconfidence
• 1.10 The research gap identification
• 1.11 Hypotheses generation
• 1.12 Research goal statement
• 2. Methodology
• 2.1 Data sample
• 2.2 Time frame
• 2.3 Variables
• 2.3.1 Depending variables
• 2.3.2 Independent variables
• 2.3.3 Control variables
• 2.4 Data collection
• 2.5 Event study methodology
• 2.5.1 Evaluation of M&A performance
• 2.5.2 Defining the event window
• 2.5.3 Cumulative abnormal returns calculations
• 2.6 Regression
• 2.6.1 Testing for Multicollinearity
• 2.6.2 Testing for Heterogeneity
• 2.6.3 Testing for Heteroskedasticity
• 2.6.4 Testing for Autocorrelation
• 2.6.5 Testing for Normality
• 2.7 Robustness test
• 2.8 Validity and Limitations
• 3. Empirical results
• 3.1 Descriptive statistics
• 3.2 Cumulative abnormal returns
• 3.3 Regression Model
• 3.3.1 Multivariate regressions
• 3.3.2 Robustness Tests
• 4. Discussion
• 5. Conclusion
• References
• Appendix 1
• Appendix 2
• Appendix 3
• Appendix 4


List of Figures

Figure 1: Development of the global M&A market

Figure 2: Lessons from past downturns can be instructive in the COVID-19 era

Figure 3: M&A transactions in the Russian oil & gas sector in the past decade

Figure 4: Russian M&As (2013-2019)

Figure 5: Cost of 2P reserves, 2015-2019

Figure 6: M&As involving Russian companies

Figure 7: Share of women CEOs by sector and company size

Figure 8: Tasting of the CAR variables on the normality of the distribution

Figure 9: The histograms of the distribution of standardized regression residues

Figure 10: The histograms of the distribution of adjusted standardized regression residues



List of Tables

Table 1: Units of study of the research

Table 2: The description of the independent

Table 3: Distribution of the observations of the sample by years

Table 4: Distribution of the observations of the sample by industries

Table 5: Distribution of the observations of the dummy variables

Table 6: The results of the regression models (1) - (4)

Table 7: Robustness test results of regression models (5) - (12)

Table 8: CARs calculations for 21 and 11 event windows around the considered announcements

Table 9: Pearson correlation matrix



List of Appendices

Appendix 1: The sample of the research

Appendix 2: Calculated CARs for two event windows

Appendix 3: Pearson correlating matrix

Appendix 4: The histograms of standardized regression residues



List of Abbreviations

CEO	Chief Executive Officer
M&A	Merger and Acquisitions
CG	Corporate Governance
AR	Abnormal Return
CAR	Cumulative Abnormal Return
AAR	Average Abnormal Returns
CAPM	Capital Asset Pricing Model
OLS	Ordinary least squares
ROA	Return on Assets
RUB	Russian Ruble
USD	United States Dollar
MOEX	Moscow Stock Exchange
mln	Million
bln	Billion



Introduction

Profit maximization and wealth growth are initially the main objectives of every organization. In this term, enterprises apply different techniques in order to increase its profit, expand business and be able to compete in the fast-growing market. One of the widespread tools, that can be used both by small enterprises and huge corporations are transactions. Kapranova and Zazulia (2014) notice that the modern Russian M&A market significantly differs from the markets of the USA or Europe, having its own specific features. AK&M Information Agency (2019) emphasizes a rapid growth in the Russian M&A market in the first half of 2019 in comparing with the same period in 2018. Based on the report, 169 M&A transactions were completed in the first half of 2019 on the Russian market, with the total cost of $33.85 bln. Analysts consider this growth as the “toxic effect of the sanctions”, forcing Russian businessmen to sell their assets abroad.

Basically M&A transactions are aimed at different companies' unification for improving their effectiveness and performance and creating a synergy effect. In the real practice M&A transactions can have a positive impact on the company as well as negative one. Based on previous conducted studies, the identified research gap is the lack of attention paying to evaluation of such factor as overconfidence in terms of M&A deals in the Russian market. Thus, the raised question is “How do the CEO's personal characteristics influence the success of M&A?”. Respectively, the goal is to study the relationship between some personal features of the CEOs and the financial performance of the companies as a result of M&As. It means that the purpose has mixed type: exploratory and descriptive. The research is conducted for the Russian M&A market. The time horizon from 2012 to 2019 for the study is taken in order to analyze also the difference between pre- and post- crisis environment.

Based on the relevant studies, several hypotheses are formulated respectively to considering variables:

H1: The acquisition conducted by older CEO has a stronger short-term performance than the acquisition conducted by a young CEO.

H2: The acquisition conducted by a CEO with previous CEO experience in a similar industry has stronger short-term performance than the acquisition conducted by CEO without previous experience in a similar industry.

H3: The acquisitions conducted by a CEO with a work-experience in the government has stronger short-term performance than a CEO without a work experience in the government.

H4: The acquisition conducted by a CEO with at least three previous experience of M&A deals has stronger short-term performance than the acquisition conducted by a CEO without previous experience in M&A deals.

H5: The acquisitions conducted by a CEO with business education has stronger short-term performance than the acquisition conducted by a CEO without a business education.

The hypotheses are checked by methods of exploratory research: secondary data analysis, the event study method and cross-sectional regressions. A significant number of empirical studies on the topic of efficiency of transactions in foreign M&A markets are based on the event-study method. This method allows to evaluate the effectiveness of the transaction in the short-term period, based on market reaction on the particular event, and as a consequence indicates the creation or destruction of shareholder value for acquiring firms along with target ones. Financial indicators, CEO's age, previous experiences, and business education are taken as secondary data. All required data is collected from Refinitiv service as well as from different information services as TASS, SPARK, Investing.com, etc.

Units of the study consist of several independent variables, such as CEO's age, industry relation, government work experience, experience in M&A deals, availability of business education, and dependent variables are presented in the table below. The study sample represents the information about M&A deals in Russia for 2012 - 2019 time period.



Table 1

Units of study of the research

Variable	Measuring instrument	Indicator	Operational definition
CEOs' personal characteristics	Secondary data analysis	Age, industry relation, government work experience, experience in M&A deals, business education	Independent variables that represent the most common CEO's characteristics that can have a potential impact on M&As' results.
M&A deal success/failure	Event study method	Cumulative abnormal returns (CAR)	CARs reflect the effect of the event (M&A announcement) on the stock returns.

The possible limitation could be lack of necessary information as the research is focused on the Russian M&A market. There also could be such limitations as inconsistency of information about the same events in different relevant sources. Furthermore, some information may be confidential what troubles the process of information gathering.

In order to conduct the first part of the research and calculate CARs, that reflect M&A short-term performance, the following steps are done:

1. To identify the estimation window and the event window;

2. To calculate actual returns for each company in the sample in the considering period;

3. To calculate normal returns for each company in the sample in the considering period by CAPM;

4. To calculate expected returns in order to consider a linear relationship between market profitability and stock price;

5. To calculate abnormal returns (AR) for each company in the sample in the considering period;

6. To calculate cumulative abnormal returns (CAR) for each company in the sample in the considering period;

7. To calculate average abnormal returns (AAR) for observations of the sample in the sample in the considering period;

8. To check the statistical significance of the used event analysis method by calculation the t-test and to identify for which days CAR values are the most significant.

Next part of the research is reserved for cross-sectional regression analysis in order to estimate the influence of independent variables on M&A short-term performance. For this purpose, the OLS method is used for two defined event windows. Then several tests are conducted in order to check the correctness of the analysis:

1. Multicollinearity test that check the correlations between independent variables;

2. Breusch-Pagan-Godfrey test to check for heteroskedasticity of random errors in the regression model;

3. Durbin-Watson test for checking the autocorrelation of the variables;

4. Testing for normality of the distribution by the graphic method in SPSS;

The study is structured as follows. In the first part of the study the previous researches analysis is carried out in order to identify the gap in the topic of corporate governance in terms of M&A deals.

In the second part previous studies on the relevant topics of years 2014-2020 are analyzed for finding out the variables that can have an influence on the M&A deals results.

The third part of the research paper explains data collection process, sample generation process and sample description, applied event study methodology and cross-sectional regressions in order to test the defined hypotheses, and describe the dependent and independent variables.

The fourth part of the paper represents obtained empirical results and provides explanations to them.

The fifth part includes the discussion of the obtained results and compares them with the results of the previous researches.

The final part reflects the importance of influence of CEO behavior on short-term M&A performance and possible ways of results implementation to the practice of CG and the decision-making process on M&A. The lists of used materials and supported information including data sample are provided in References and Appendix respectively.

This study has theoretical and practical contribution, being useful to explain the behavior of CEOs in terms of their individual characteristics. The study helps organizations avoid the undesirable financial risks associated with decisions of CEOs regarding M&As. The study is also useful for investors and shareholders, helping them to analyze the actions of CEOs and make a balanced decision on investing in certain transactions.



1. Literature review

There are no doubts, that in order to expand a company and increase its value, several ways can be applied. The analyzed articles consider M&As as one such tools. Therefore, different authors evaluate the usefulness of this method of improving the company's performance in different ways, highlighting both negative and positive sides. For searching the relevant information about the topic, multiple different sources are used, such as journals with publications of scientific articles (JSTOR, Science Direct, SAGE, and so on), citation bases (Web of Science, Scopus) and other scientific archives.

1.1 The definition of M&A term and its classification

The topic of M&As generates a lot of researches. According to the forecast of Global M&A Outlook (2019), the volume of transactions in the global market of M&As reached $4.1 trillion in 2018, which is the third largest indicator in M&A deals' history. M&A transactions primarily considered as a way of diversification in national and global perspectives. Some researches suppose that M&A is primarily tool for expansion of business in different countries (Goyal & Joshi, 2011; Bedi & Vij, 2018). However, Jensen (1986) considers M&As as a profitable investment for maximization of a company's value. Renneboog and Vansteenkiste (2019) claim that M&A deals are one of the most fundamental events in the life cycle of the company, which have a significant impact on both firm's financial performance and its operations.

M&A transactions allow the company to penetrate new markets and expand its customer base, that directly lead firm's faster growth. Acquiring new complementary products as well as R&D intensive products, patents and trade secrets enable to expand a business and reduce competition. From Renneboog and Vansteenkiste's (2019) point of view, M&As empower to reduce taxes by getting new subsidiaries situated in tax-friendly countries, that also provides eliminating surplus facilities and overheads and simplifies access to capital. However, pursuing M&A is not a perfect tool for CEOs, who want to increase their assets and expand the company. According to several studies (King et al., 2004; Tuch & O'Sullivan, 2007; Dutta & Jog, 2009) there are quite significant variations in the success of the deals: positive returns are gained by only 40% of acquiring companies after 2-3 years after the transaction, while 50% get negative returns.

Coates (2014) claims that “the core of M&A deals is intentional transfer of control and ownership of a business” Coates, 2014, p. 2). From this point of view, M&A is considered as transformation of two or more firms under separate management and with their own resources into a single organization. From legal perspective, M&A transactions initially divide into three categories: asset purchase, stock purchase and merges. The most primitive M&A deal is taking control over a business by purchasing of all its assets (Coates, 2014). In the Russian researches the M&A is defined as the creation of new enterprises, the deal of which considered completed at the time of registration of the new company (Vorotilova & Kazakov, 2015).

In spite of the terms M&As are often used together in the literature, there is a significant difference between these two concepts, which is based on the way in which the combination of the two companies is brought about. Horne and Wachowicz (2004) defines merger as a legal activity of two or more companies combined and only one of them survive as a legal entity. Some authors consider merger as a business combination of two or more formerly independent companies on equal terms by joining the ownership of the former separate resources (Hoyle, Schaefer & Doupnik 2001; Horne, 1998). An acquisition determines as purchasing one firm by another and ownership of the combined enterprise remains with the purchasing firm (Harvey, 2015). Georgios (2011) emphasizes that “in a merger, two or more firms approach together and become a single firm while in acquisition big and financially sound firm purchase the small firm” (Georgios, 2011, p. 1741).

According to Gaughan (2007), the main classification of M&A from the view of strategic management depends on functions of involved companies. The vertical M&A is considered when companies operate at different levels of supply chain of the same specific end-product. This type is basically used in order to reduce the risk associated with suppliers (Coates, 2014). The horizontal M&A transactions relate to the companies of the same industries. The conglomerate (or cross-industrial) M&As occur in cases when the merging companies continue to operate in different sectors and industries (Coates, 2014). Some previous studies follow about the advantages of horizontal M&As considering the managerial abilities and skills, which influence the success of failure of the transaction (Capron, 1999; Raman et al., 2013). Managers of the firm-acquirer are more aware of the specific features of the industry they work in and thus can adequately evaluate risks and overall picture in order to achieve higher efficiency in the same-industry M&A, where they are more experienced, comparing to the cross-industrial M&As. Horizontal transactions demand information and participation in the same networks with almost the same senior management in the same field. In that case managers have better access to such resources. Furthermore, managers of the company-acquirer can more precisely evaluate possible risks and potential outcomes since they have an information about economic performance, target firm's key economic drivers, if they operate in the same-industry. In case of conglomerate transaction even able managers may not manage the merged company, leading to the ineffective operations and low performance (Cui & Leung, 2020).

Coates (2014) distinguishes also two other types of acquisitions deal's classification: friendly and hostile. In the first case the firm is willing to be acquired in perspective of developing into new areas and using the resources offered by the acquirer. In the second case “the target is opposed to the acquisition” (Coates, 2014, p. 3).



1.2 M&A waves

Sonnikova (2011) writes that the development of the M&A market occurs in waves. A wave means an increasing number of M&As in a certain period of time. Thus, the author identifies five waves of M&A in the world market, based on economic literature.

The first wave occurred from 1897 to 1904 and was caused by the development of industrial production and the emerging need to maintain market prices through capacity optimization. This wave is characterized by horizontal transactions with a large number of participants (75% - more than 5 participating companies, 25% - 10 or more).

The second wave occurred after the stock market crisis of 1904, namely from 1916 to 1929, when new antitrust laws were introduced, but those transactions already had a vertical orientation and were more diversified. However, decisions taken in connection with legal innovations led to the emergence of oligopolies. The motivation for the merger was the desire of companies to gain full control over the production cycle.

The third wave was in 1960-1970 and had a cross-industrial character (conglomerate transactions), as statistics show: the number of conglomerate transactions increased from 10.1% to 45.5% during this period. At that time, new legislative restrictions were adopted on horizontal and vertical transactions and their number decreased from 39% to 12% in the same period. Manufacturers wanted to diversify and increase the number of their products.

The fourth wave of 1970-1973 was caused by the stock exchange and oil crisis, so the deals were mostly hostile in nature and led to the destruction of former conglomerates in order to find new ideas and business fundamentals to overcome the crisis stagnation.



Figure 1 Development of the global M&A market, USD bn Source: Sonnikova, (2011), The history of development and prospects of the global market for mergers and acquisitions

The fifth wave of M&As occurred in 1995-2000 which was characterized by the horizontal integration of transnational corporations, especially in the financial sector. This wave was a consequence of the development of the global market and international relations.

Nevertheless, Alexandridis et al. (2011) adds the sixth wave of M&A in the global market, driven by the available abundant liquidity. It occurred from 2003 to 2007, several years after the burst of technology bubble. This wave is characterized by less over valuated firms-acquirers, comparing to the targets, and by low financing rates.

At the same time, Ivanov (2017) emphasizes that the beginning of the sixth wave of M&As in the global market lies within 2003. Thus, the sixth wave is determined by the time period from 2003 to 2013, which is characterized by a large number of transactions in the framework of the implementation of the cross-border integration strategy. According to Ivanov (2017), the emergence of this wave occurred as a result of the growth of the stock market and the support of mega deals for creation of corporations on national level, including Russian corporations. After the peak of the wave in 2007, there is a sharp decline as a consequence of the collapse of the stock market, the global financial crisis and a slowdown in the economic growth of developed countries from 2008 to 2009. This period is considered as a turning point in the dynamics of the global market for M&As, which influenced the changing conditions of global competition, and forced all players in the global market to review development strategies (Khasanshina, 2015). The beginning of the next wave dates back to 2014, when the economy is actively recovering from the global financial crisis. It is noted that the emphasis in transaction industries is shifting to high-tech industries, while the number of transactions in the global market in the mining and industrial sectors is declining (Ivanov, 2017). During the period of this wave, the markets of the BRICS countries are actively developing and the share of cross-border transactions increases. This wave is continuing at the present time.

The reality is changing and nobody expected any sudden health hazards that blocked almost all spheres of usual life, harming the global economy. According to the McKinsey & Company's analysis of M&A market during the COVID-19 hazard (2020), there was no deals worth more than $1 mln in April 2020. It was the first time since the 2004. M&A activity will be limited for some time due to the focus on financing challenges, employee safety and volatile valuations. McKinsey & Company also records the drop of M&A values on 40-60%. According to the results of Cortez et al. (2020) research, the COVID-19 pandemic is a unique and is not similar to recent hazards, causing a significant uncertainty shock for all people: employees, customers and suppliers. Specifically, the pandemic influenced the start-ups controversially. From one side, those who were on their primary stage now may suffer as most of the businesses are frozen and customers are not prone to be active in the market. From the other side, coronavirus hazard gives an opportunity for further development of new start-up, which may be adjusted to the new reality (Kuckertz et al., 2020).



Figure 2 Lessons from past downturns can be instructive in the COVID-19 era Source: S&P Capital IQ

As for oil industry as a primary industry in the global market, the situation is not that bright as it may be. Before the rapid spread of the virus, Russia refused to reduce volume of oil production what triggered Saudi Arabia as a main participant of OPEC to sell their oil with much lower prices and in greater quantity, thereby caused the sharp drop (by 24%) in prices for Brent Crude oil. That negatively affected global economy and specifically Russia and unsuccessfully coincided with the sudden pandemic. Nicola et al. (2020) highlight that in the peaceful times low oil prices may be an advantage for economies but together with stressed employees, feared of losing their jobs, the situation may cause much greater troubles in long-term scale.

Since in most cases the waves of M&As are the consequences of market crises, it is likely that the decline of the world and in particular the Russian economy due to protection from COVID-19 can also lead to a new wave on the M&A market. It is uncertain how long will this pandemic remain and how badly will the economy be harmed but correct combination of low interest rates, supporting fiscal policies, including economic stimulus packages, can mitigate the outcomes and stimulate the further growth.

1.3 Features of the Russian M&A market

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Figure 3 M&A transactions in the Russian oil & gas sector in the past decade Source: KMPG Russian M&A review 2019

Figure 4 Russian M&As (2013-2019) Source: KMPG Russian M&A review 2019

Business restructuring and getting rid of unprofitable areas of activity are one of the common reasons for M&A activity in recent years. Considering some specific features of the Russian M&A market, the majority of M&A transactions does not belong to horizontal or vertical types as the main aim of M&A is to diversify business and enter new markets. According to Kapranova and Zazulia (2014), unfriendly takeover (raiding) transactions prevail in the Russian M&A practice. This type of takeover is characterized by acquiring asset control through various kinds of pressure - political or judicial. In this term, a distinctive feature of the Russian market in comparison with other countries is a high level of government involvement. The government does play not only a role of a regulator but also actively participates takeover activity.

Figure 5 Cost of 2P reserves, 2015-2019, $/boe Source: KMPG Russian M&A review 2019

According to the KMPG Russian M&A review of 2019, there is a slight grow in Russian M&A market (change in 3% comparing to the previous year), while the value of the deals increased for 21.5%. Most of the transactions were made in the oil and gas sector (34% of total value in Russian market) in terms of number of deals (59 in 2019, twice more than in 2018) and value ($27.7 bln). Furthermore, Russia raised the outbound deals investments for almost 50% ($20,9 bln in 2019). Oil and gas industry is the major industry of Russian market with the largest values and numbers of M&A deals, containing 20% of Russian GDP. Even after the crisis of 2014, the sector remains to be the leading one in the market. Such dynamics and attractiveness for the investors in this sector can be explained by such factors as stable political regime, quite low production costs, low regulatory, and red tape barriers. Moreover, Russia has the lowest prices of 2P reserves in the world (see Figure 5).

Another one of the leading sectors, containing deal value of 12% of Russian M&A market, is innovation and technologies. Most of the transactions are connected with the ecosystems technologies and featured to the creation of joint ventures and direct investments in the companies. For instance, there was a deal between Mail.ru Group and Sberbank that was aimed to create a partnership with the following development of special technologies for food and transport market.

However, there are some risks, concerning the M&A investments into IT sector. Focus of M&A teams shifted from the traditionally estimated financial indexes (EBITDA, revenue, debt and so on), assumed to be the key indicators for predicting the success of the company, to such factors as uniqueness and quality of the company's product or IT start-up. More than that, with the emerging number of IT start-ups in constantly developing technological market, M&A investors have to pay their attention firstly to the strategic plan of the start-up and its operating model as well as examining the potential risk factors and weak areas. In other words, the attention of investors is directed to the analysis of the future potential development rather than to the analysis of historical data of the acquired company.

Another important aspect of Russian innovation and technology M&A market is M&A tax risks. Since the IT companies have several tax incentives like lower insurance costs and agreements with innovation centers (for example, Skolkovo) that allows the company to be tax-exempt. Nevertheless, such incentives may become underwater rocks if the conditions for their applying were not correctly met. Moreover, sometimes IT companies try to boost their efficiency with different tools like splitting into several legal entities, but sometimes such measures may lead to disagreements with tax authorities. Furthermore, IT companies mostly work with intangible assets (know-how technologies, innovations), that sometimes difficult to estimate properly, and thus they have to be listed in the accounting balance sheets in order to avoid possible tax miscalculations that may cause future problems for M&A teams. That is why it is important to assess the previous and future risks of the IT company to save the tax-exempt status.

According to KMPG statistical information, the real estate and construction sector occupy the third place by value of M&A deals ($5.3 bln) and first by volume (134 deals) in 2019. This sector is expected to be expanded in coming years and becomes more attractive to the investors. There are some trends that may explain such expectations. First of all, banks implemented several programs of managing risky portfolios and problematic non-core assets. Some banks and real estate organizations returned to the previously delayed projects. For example, Sberbank returned to the project of Rublevo-Arkhangelskoe with real estate of about 4 mln square meters in the second quarter of 2019. Such innovations created new tools and ways of managing portfolios by specially created new managing teams that helps M&A teams to work with risky businesses.

Secondly, some agreements in this sector are made with the conditions in which the credit agreement with real estate as a collateral, so banks created special reserves in order to dispose assets in the open market. In this situation the buyer of the right of such claims gets the access to the collateral (real estate) instead of getting engaged in the bankruptcy procedures in case of buying nearly-default assets and even gets the possibility to make some profits. These changes attract some investors who are ready to acquire these “bad” assets on affordable price and simplifies the activities of banks, freeing them from clashes with bankruptcy procedures, so changes are beneficial for both banks and investors.

Thirdly, there were amendments in legislation in terms of projects financing and developers' requirements, thus leading to the changes in the revenues what seems to be attractive for the players of this industry. This innovation is connected with housing law in order to solve the problem with defrauded equity. In the past years there were a number of cases with defrauded equity, and in order to increase the control over developers' activities Russian government implement some changes in the federal law about co-funding in apartment block construction, redirecting funds of investors to special escrow bank accounts. After that developers can receive invested money only when the building become operational. Before that the construction is financed by credits from the bank, holding these escrow accounts. In case of bankruptcy of developer's company all funded money go back to the funders and the unfinished construction goes to the bank. Thus, banks play a role of the intermediary, holding investors' money in order to protect them from huge losses in case of fraud. As for stricter requirements for developers - they have to provide information about possessing a required level of share capital in company's current account and be experienced enough in this industry. However, such requirements may negatively affect indexes of margins and return on investments due to postponed funds, what may weaken the developers and set quite significant obstacles for small developers. Nevertheless, this naturally stimulates the M&A market as large developers will merge or acquire small ones and create alliances in order to meet the established requirements.

Fourth, continuing the previous paragraph, government now penetrates into the sector and thus supports transactions, involving larger development organizations. One of the main players of real estate market is state-owned Dom.RF who provides support and affordability of estate for usual citizens. In other words, it collects data about Russian developers who work under share construction. Moreover, this service disposes its own bank for development projects. Such boosting participation of government also leads to M&As that may create synergy effect from integrated management and business processes together with growing production capacities as it happens with merger between Etalon Group and JSC Leader-Invest, operating in Saint Petersburg and Moscow respectively.

Last but not least, previous changes at the same time have an impact on the segment of commercial real estate. As state-owned companies and the largest Russian banks occupy more and more high-quality office spaces and whole buildings, there is no space for other companies who must search for another offices. This influences the rental rates and thus attracts investors' interest. Investment-related deals were analyzed as well as non-investment. One of the largest events on Russian M&A market was the purchase of Gallery Mall in Saint Petersburg by Arab Mubadala Investment Company. The value of this deal is approximately $ 600-650 million. There were also some transactions in the office segment of real estate sector in 2019: the largest one is sale of complex of Neva Tower in Moscow City with size of RUB 154.5-175 billion. Overall, the real estate sector moderately grows and attracts both outbound and inbound deals.

Although 2019 shows growing dynamics in M&A market, the economic background is not so positive. For example, according to KMPG review, Russian GDP growth in 2019 is slowing down (2,3% in 2018, comparing to 1,3% in 2019). Despite the fact, that overall description of 2019 can be seen as “economic slowdown”, the investors are optimistic due to country risk drawdown and world best RTS index that remained so in 2020.

Expectations about future development of Russian M&A market and economic environment in general are heavily exposed by suddenly appeared coronavirus (COVID-19) in 2019, which affected a lot of aspects of life and world order system in following year, impacted global economy as well. China who is one of the major players in Russian and not only market, provides most of the tourist traffic in Russian cities, so at first tourist segment suffers mostly. KMPG analysts predict a drop of oil prices for Russia, one of the core segments of Russian market, what may start a chain of new crisis. Cortez and Johnston (2020) write that health hazards are the rarest type of crisis reasons, that is why they are so complicated to solve as there are no common scheme for its overcoming. The most recent relative case of such crisis was Ebola hazard in 2014, impacted Central-western part of Africa. That time the hazard caused breakdowns in several different sectors: manufacturing, transportation, mining and food-processing. These breakdowns lead to drop of household incomes and caused economic crisis in the region.

1.4 Factors influencing the M&A's performance

Some researchers focus on the effect of M&A transactions on the companies that are involved. Haspeslagh (1991) and Roll (1986) emphasize the inconclusive impact of M&A transactions on the acquiring company's performance. While some studies illustrate an insignificant positive effect of enterprise value, the majority of studies shows a neutral or negative impact on the firm's performance (Renneboog & Vansteenkiste, 2019; Harvey, 2015; Voesenek, 2014; Alexandridis et al, 2010; Sirower, 1997). Renneboog and Vansteenkiste (2019) mention that there are quite a lot of factors, influencing the overall outcomes of the M&A deal, including attitude towards the transaction (hostile, neutral or friendly), status (private or public), type of payment (equity, cash of mixed type), and some others. However, King et al. (2004) write that most of mentioned factors cannot give precise prediction of the transaction results, thereby pointing out that it is still important to search for another variables. Renneboog and Vansteenkiste (2019) suggest the following influencing factors: CEO's characteristics, repetition of transactions, board's features, corporate government and cultural differences, political features, geographical measures such as distance, and several more.

Some studies research the correlation between CG and the outcome of M&As' results. The history illustrates that the poor corporate government is the evidence from failures of American companies such as Enron, Parmalat, WorldCom. One of the main parts of CG structure is board of directors of the company that is responsible for determining policies for corporate management and deciding on main issues of the company's activity. Board size tends to negatively influence both short-term and long-term performance of the M&A. Bedi & Vij (2018) explains this by ineffective decision-making process and time-consuming process in cases with many people on board with different views and opinions. Several researches consider the managerial overconfidence as a key factor of effectiveness of CG (Bressane & Maia, 2010; Thuy, 2015; Hoving, 2017).

1.5 Corporate governance definition

Clayman, Fridson and Thoughton (2012) explain the definition of CG as “the system of principles, policies, procedures, and clearly defined responsibilities and accountabilities used by stakeholders to overcome the conflicts of interest inherent in the corporate form” (Clayman et al., 2012, p. 527). These conflicts may not only increase the risks of creditors but also reduce them (Teplova et al., 2019). At the same time, Van Horne and Wachowicz (2015) see the CG as a system that manages and controls the whole corporation (Van Horne & Wachowicz, 2015).

CG is a part of top management process, which consists of value creation as a basic purpose and its transference among corporate claimants, being accompanied by accountability toward them. Claimants are those stakeholders who are economically connected with this corporation: shareholders, employees, customers, creditors, suppliers, competitors, and even the society-at-large. Moreover, CG defines the role of each part of the corporation system (board of directors, managers), their interactions with each other and with CEO, as one of the responsibilities which is closely connected with “agency” problem (Sundaram, Bradley, Schipani & Walsh, 2000). Board of directors is the center of the system, which protects interest of stakeholders (Kaplan, 2001). There are several responsibilities of the board: to ensure that all acts of company are legal, approve strategy and set the compensation (Sundaram, 2004). Thus, the main principles of CG are to mitigate and minimize possible conflicts of interests in agency relationships and to ensure that company's assets are used in a productive way, following interest of the stakeholders (Terjesen et al., 2015).

CG includes agency relationships which arise when person (agent) acts on behalf of another person (principal). The ideal relationships assume that managers (agents) work in the interest of stakeholder (principals), but in real life the picture is not always perfect and thus there is a “principal-agent” problem. There are two types of conflicts: manager-shareholder (which is claimed to be more important) and director-shareholder conflicts. Corporate governance system relies on a relationship between the managers and investors in which the board of directors plays role of intermediary between them (Terjesen et al., 2015). These conflicts may be controlled and resolved or at least smoothed by external audit, but sometimes creditors may impede audits as it is not always financially affordable option if taken into consideration the members of the Big 4 (Deloitte, KMPG, PwC and Ernst&Young). Big 4 members can afford themselves an independency due to high reputation that they have to maintain on the same high level by carrying out reliable and proven reports. However, small and medium-sized audit firms are often influenced by powerful CEOs, and thus have to follow interests and requirements of these CEOs. (Teplova et al., 2019).

CG in Russia shows not the best results on the global scale. According to statistics, Russia took the 115th place in Legatum Prosperity Index out of 149 countries by CG and rule of law in 2017 (Teplova et al., 2019).

1.6 Corporate governance mechanisms

Shleifer and Vishny (1997) suggest that effectively governed companies with good CG have better operating performance that gives managers an opportunity to invest into positive net present value projects and also decrease control rights. Control rights are “the amount of discretion or control managers have over allocating investors' funds” (Shleifer & Vishny, 1997, p. 728). There is also another mechanism of control - cash flow rights that can be allied by concentrated ownership, but such rights can also be abused because shareholders can possibly get wealth from other smaller shareholders (Shleifer & Vishny, 1997).

According to Gompers et al. (2003) and Bebchuk and Cohen (2005), the stronger stockholder rights in the firm, the higher Tobin Q's indicator because better-governed firms increase enterprise value. Tobin (1978) provides Tobin Q's as “a proxy for future investment opportunities, that defines as the market value of a firm divided by the replacement cost of the firm's assets” (Tobin, 1978, p. 155).

All corporate governance mechanisms can be divided into two groups: internal and external, which become more important in case of failure of internal ones. Internal mechanisms include following: “the structure and role of the boards, the role of the CEO vis-a`-vis the board, the nature of employment practices, and the nature of internal control systems and incentive systems in place to measure and reward the performance of employees of the firm” (Grosse, 2000, pp. 115-116). External ones are: “capital markets, product markets, managerial labor markets, and the market for corporate control” (Grosse, 2000, p. 114). The most discussed external mechanism in Anglo-US model of CG is role of market for corporate control because if it is active, shareholders can sell their shares, lowering prices and thus make outsiders to accumulate control rights, even if the company is poorly governed (Sundaram A., 2004). Sundaram (2004) considers that corporate control can be as effective for the success as for huge failure of the corporation.

1.7 Corporate governance as a factor of success or failure of M&A

Some studies illustrate the connection between CG and company's performance. Renneboog & Vansteenkiste (2019) highlight two streams of view on CG. The first is about long-term strategies and specific policies. The second one focuses on feature of the board of directors such as its size, gender, independence, age, and duality of chief executive officer (CEO). Naciti (2019) distinguishes following factors of the firm's sustainability performance impact: independent directors on board, board diversity and separation of board chair and CEO roles. Although in later research Yermack (1996) shows that companies are more valuable when the CEO and board chair positions are separate. The recent study of Naciti (2019) approves that separation of CEO and board chair position provides an increase in the independence of the board of directors from management and strengthen efficiency of management responsibility, decrease agency cost and provide better company's performance. Hermalin and Weisbach (1991) and Bhagat and Black (2002) claim that independent boards have higher returns on equity as well as profit margins, dividend yields, stock repurchases. Lipton and Lorsch (1992) ensure that limiting board size leads to improve enterprise performance.

Another way to calculate CG performance is corporate governance index (CGI). In the research of Rani et al. (2013) such variables as management discipline, transparency and disclosure, independence, accountability, responsibility, fairness, corporate social responsibility, CG initiatives, and recognition are used as basis of CGI. Bebchuk et al. (2008) considers such variables as fluctuation of boards, restrictions on amendments to the charter of shareholders, golden parachutes, overwhelming majority requirements for mergers and charter amendments. Lips (2016) evaluates only three variables: `board independency', `blockholders', and `CEO pay-for-performance'.

Analysis of the company risk includes the review of its CG system quality, meaning the assessment of its three components: board of directors, managers and shareholders, as the long-term performance depends on managers' decisions (Clayman et al., 2012). To be more precise, power of CEO can be measured by the level of duality of CEO, CEO's ownership of company's stocks, amount of CEO's compensation, difference between the next highest paid officer, and difference between the average compensation of other top management. Considering evaluation of the board of directors, it is important to take into account its independence, independence of its chairman and qualifications of directors, annual election of directors, annual board self-assessment, separate sessions of independent directors, audit committee and audit oversight, nominating committee, compensation committee, board's independent and legal counsel, statement of governance policies, disclosure and transparency, insider or related-party transactions, responsiveness of the board to shareholder proxy votes (Clayman et al., 2012). Shareholder power can be measured by shareholders' voting rights, if the top manager is a founder or owner, by the analysis of institutional shareholders, employee ownership and corporate crossholdings (Clayman et al., 2012).

The Organisation for Economic Co-operation and Development (OECD) issued its code, OECD Principles of Corporate Governance (OECD Principles) which Preface states that “A good corporate governance regime helps to assure that corporations use their capital efficiently” (Organization for economic co-operation and development, 1999, p. 5). All efficient corporate governance regimes have a high degree of priority of shareholders' interests, who believe that a corporation will use shareholders' investments wisely and effectively.

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