Executive compensation and managerial ownership incentives by huanghengdong


									Corporate Governance and M&A Performance for Banks in Taiwan

Chin-Shun Wu
Professor of Department of Business Management, National Sun Yat-sen University,
Kaohsiung 80424, Taiwan.

Chia-Chen Teng
Ph.D. Student of Department of Business Management, National Sun Yat-Sen University,
Kaohsiung 80424, Taiwan.
E-mail: andy0713@seed.net.tw
Tel: +886-7-5252000 ext. 4601~05
Fax: +886-6-2987258

Chien-Chi Chu
Ph.D. Student of Department of Business Management, National Sun Yat-Sen University,
Kaohsiung 80424, Taiwan.

ABSTRACT. Using banks in Taiwan as a sample, this study aims to focus on the relation
between banks’ governance characteristics and the outcome of bank merger activities.
Adopting governance variables such as executive remuneration, managerial ownership, and
board diversity, we find that managerial ownership is significantly positive with bank merger
results and that board size is significantly negative with the performance of Taiwanese bank
mergers. This study provides support for sound governance mechanisms that may prevent
banks from pursuing value-loss merger and acquisition (M&A). Our results offer the insight
that, while external regulation attempts to create a friendly environment for banks to conduct
mergers, internal bank governance structures play a bigger role upon the value effects of bank
mergers. Thus, regulators may elevate the performance of bank M&A by strengthening
national corporate governance codes.

Keywords: Corporate governance, M&A performance, executive remuneration,
managerial ownership, board diversity
This paper’s goal is to examine the relation between bank governance and merger and
acquisition (M&A) performance under Taiwan’s special regulatory environment. Using bank
M&A activities in Taiwan as a sample during the period 1997-2006, we find that managerial
ownership is significantly positive with the performance effects of bank merger activities,
while board size is negatively associated with the outcome of bank M&A. We also find that
board diversity, including gender and education, is not significantly related with bank merger
  Banks play an essential role in the allocation of resources between savers and borrowers in
mitigating the effects of information asymmetries. Given the importance of bank financing to
an economy, bank governance guarantees a detailed examination. First, banks’ opaque
operations make it more difficult for outsiders to evaluate the risk and value of their loans as
opposed to non-financial firms (Morgan, 2002). Second, the belief that governments should
put more effort on systematic stability before any concerns about managerial inefficiency is
common in light of the current global financial crises and bail-out policies. As a result, the
role of regulators may curtail the influence of governance. Poor bank governance may allow
insiders to build their empires and give shareholders disappointing returns (Shleifer & Vishny,
1997; Morck, Shleifer, & Vishny, 1990). As many studies have used performance after M&A
in a non-financial industry to measure the effectiveness of governance (Byrd & Hickmean,
1992; Wright, Kroll, Lado, & van Ness, 2002; Kini, Kracaw, & Mian, 2004), Hagendorff,
Collins, and Keasey (2007) argue that this may be an advantageous way to research bank
   The specialty and importance of bank governance on M&A activity have received little
academic attention. Although there are many U.S. studies and to a lesser extent European
studies in the past two decades indicating that bank M&A may cause the acquiring bank
shareholders to lose value, Hagendorff, Collins, and Keasey (2007) raise the question that the
extent of the reported results can be applied to other areas outside the U.S. The difference in
governance, regulation, and system in other places also warrants a separate analysis.
Therefore, they strongly encourage research that examines bank governance and M&A
performance in other countries.
   This research contributes to the literature in the following ways. First, numerous studies
adopt stock returns around the M&A announcement to measure the performance (i.e. James
& Weir, 1987; Pilloff, 1996; Hayward & Hambrick, 1997; Bliss & Rosen, 2001). Most of
these studies measure the short event window in days. Instead, we use the accounting ratio
ROE after one-year and two-year M&A as the measurement of performance in order to
provide more insight on the impact of a corporate governance mechanism upon long-term
bank performance. Second, previous studies have focused on the relation between board
diversity and performance in the non-financial industry, with scant attention paid to the link
between board diversity and M&A outcome in the banking sector. We directly examine the
relation between board diversity and the performance after bank M&A. Third, we build a
diversity measurement by adopting the Herfindahl index which is regarded as a more
effective way to measure diversity (Hagendorff, Collins, & Keasey, 2007). Finally, we
consider and control for the external regulatory changes that may impact the performance of
bank M&A.
   In the following section we begin with a review of the regulatory environment of Taiwan’s
banking industry. We then develop the research hypothesis about the relation between
corporate governance and the outcome of bank M&A. The next section briefly describes the
measurement and data used in the empirical analysis, followed by the results. The final
section concludes.

Regulatory Background of Taiwan’s Banking Industry

The legal system of Taiwan’s commercial laws is a fusion of civil law and common law.
According to La Porta, Lopez-de-Silanes, Shleifer, and Vishny (1998), Taiwan is categorized
under civil law originating from the German family. Based on their finding, common law
traditions protect investors considerably more than civil law does, especially in French
civil-law countries. On the other hand, German civil-law countries have the highest quality of
law enforcement. Taken together, Taiwan has an intermediate level of shareholder and
creditor rights protection in the world. More importantly, laws in different countries are not
written from scratch, but transplanted from other traditions and families (Watson, 1974).
   Because civil and common traditions have spread around the world through conquest,
borrowing, and imitation, the resultant laws reflect these families’ influences and evolve
specifically for individual countries. For instance, the Taiwanese Company Act was founded
in 1929 following the German and Japanese legal systems and has quoted many instances
from English and American law since 1966 in order to improve the investing environment
and to activate corporate capital. The Securities and Exchange Act in Taiwan in 1968 used the
same U.S. law in 1933 and Japan’s own one in 1948 as its original version. In addition, the
view that law origin matters in deciding the legal protection of minority shareholders and the
increase in firm values is controversial, because there are other factors that also matter
(Coffee, 1999, 2001, & 2007), such as cultures (Licht, Goldschmidt, & Schwartz, 2001),
transplant process (Berkowitz, Pistor, & Richard, 2003), and execution effectiveness (Pistor,
Raiser, & Gelfer, 2003). Basically, Taiwan’s financial laws are influenced by both legal
origins and display a more diverse, converged perspective of rules. Hence, the research result
of Taiwan can be leveraged to other countries with similar legal backgrounds.
  Financial institutions in Taiwan have gone through tight and loose phases of government
regulation and different business cycles. Before 1990, because the bank sector was highly
regulated and protected by the government and Taiwan was experiencing high economic
growth, the domestic financial industry was a star money maker, but restrictions to entry were
lifted after 1991. Among them, the deregulation of private banks, bank branches, and
business ranges has been the most pronounced and has led the number of banks to soar in
Taiwan within a decade. Because of numerous homogeneous competitors, the interest rate
shrank and profit margins declined. In conjunction with slow economic growth and an
increased jobless rate, the business environment began to worsen.
   At that same time, Taiwan’s banking industry faced fierce competition from international
financial groups. To cope with the challenge, the Legislative Yuan passed the Financial
Institutions Merger Act on December 2000 to expand economies of scale, enhance the
efficiency of financial institutions, and create a proper competitive environment. There have
been several bank M&A activities, while 48 underperforming financial institutions were
phased out of the market. Following this law, the Financial Holding Company Act was passed
in June 2001 to increase the synergy of financial institutions, to consolidate the supervision,
to develop the financial market, and to protect the public interests. Fifteen financial holding
companies have been founded following this act.
   Taiwan’s government then executed a series of financial reforms with an aim to improve
the quality of banks, enlarge the scale of financial institutions, and provide more diverse lines
of financial products. In sum, the goal of these regulations was to help create an environment
for financial institutions to undertake M&A activities and realize M&A-related performance
gains. With regulators’ efforts, the number of domestic banks fell from its peak at 53 in 2000
to 37 by September 2008. For smaller community banks and cooperatives, the number has
dropped from 386 in 1994 to 316 in September 2008. At the same time, the NPL ratios have
declined significantly from a high of 8.16% in 2001 to 1.53% by the end of September 2008.


While regulatory efforts on consolidation have been observed, the actual post-M&A
performance of Taiwan’s banking sector and the effect of governance structures on it have not
been scrutinized, except in a few unpublished master theses. Hagendorff, Collins, and Keasey
(2007) posit that bank governance could play an important role in deciding M&A
performance and suggest that unfavorable gains for acquiring bank shareholders are due to
the effects of poor bank governance. They summarize three categories identified as the most
important bank governance variables: executive remuneration (Bliss & Rosen, 2001),
managerial ownership (Hughes, Lang, Mester, Moon, & Pagano, 2003), and board
composition (Subrahmanyam, Rangan, & Rosenstein, 1997; Brickley & James, 1987) in U.S.
studies. They also review how these governance structures influence M&A performance. In
the next section we will relate these surveys to our research and propose their connections
with M&A performance of Taiwan banks.
Executive compensation and managerial ownership incentives

In the non-financial sector, there is a positive link between firm size and executive
compensation in the corporate governance literature (Kostiuk, 1990; Baker, Jensen, &
Murphy, 1988). CEOs can benefit from M&A activities which increase firm size even though
the increase reduces the firm’s market value. Consequently, top management may find it
attractive to build empires by purchasing underperforming corporations as long as executive
compensation increases in the process. Comprehensive managerial ownership incentives
including equity stakes and stock options, on the other hand, can reduce the agency problems
associated with bank mergers. Wright, Kroll, Lado, and van Ness (2002) contend that the
nature of an executive’s wealth portfolio will impact his or her attitude toward corporate
strategy. Managers concerned about their employment income including the value of options
may reduce their risk by engaging in conglomerate mergers (Amihud & Lev, 1981).
   In bank merger performance and executive compensation studies, Bliss and Rosen (2001)
find that increases in total compensation after an acquisition amounted to $54 per $1 million
in acquired assets, compared with only $30 per $1 million of internal asset growth. When
more of a CEO’s compensation is tied to stock options or stock-based compensation, an
acquiring bank runs less risk of overpaying. Becher and Campbell (2004) find that bank
CEOs in the upper quartile of equity-based compensation are less likely to overpay for a
target than those in the lower quartile in a sample of 146 U.S. bank mergers. Cornett,
Hovakimian, Palia, and Tehranian (2003) confirm this point that the higher the proportion is
of a CEO’s wealth invested in a bank, the more often he will engage in risk-enhancing
“worthy” acquisitions.
   Unfortunately, there were no options granted for bank CEOs during the period of M&A in
Taiwan. In Taiwan it is the electronics industry where executive compensation is more stock
option-based, consistent with the western finding that the ratio of stock-based to total CEO
compensation is somewhat lower in the banking industry (Adams & Mehran, 2003) and that
executive compensation in a high-growth industry is less fixed and more stock-based (Smith
& Watts, 1992). In summary, since executive compensation generally increases with firm size
and no option is contained in the compensation packages of bank managers in Taiwan,
managers are more likely to conduct M&A to build their empires. We propose that:

Hypothesis 1a: Compensation package changes of CEOs are negatively associated with
long-term performance following bank M&A.

  CEO stock holdings in a bank can be purchased independent of the direct shares received
by the compensation committee. There are many studies arguing that as managers’ holdings
increase, their interests align with those of outside shareholders (Jensen & Meckling, 1976;
Jensen & Murphy, 1990a, b; Palia, 2000; Brown & Maloney, 1998). This leads to the
elevation of firm values. Using 423 U.S. acquisitions from 1988 to 1995 as a sample, Cornett,
Hovakimian, Palia, and Tehranian (2003) find that the percentage of equity owned by a CEO
is significantly positive to excess return at the time of the acquisition announcement. Bank
CEOs in their sample owned a mean of 1.25% of the total number of shares outstanding.
While Huges, Lang, Mester, Moon, and Pagano (2003) find that increases in insider
ownership in all three categories in U.S. financial institutions tend to have poorer changes in
Tobin’s Q after acquisition, the coefficient is not significant. Thus, we propose the following

Hypothesis 1b: Managerial ownership is positively related with performance after bank M&A.

Board of directors

Because of their role in providing and monitoring managerial discretion, boards of directors
are the most important internal control mechanisms for promoting and protecting shareholder
interests (Fama, 1980). Particularly, boards have the authority to ratify managerial initiatives,
to evaluate the performance of top management, and to determine managerial compensation
packages. The board’s expertise is especially needed for large and infrequent transactions
such as acquisitions (Hermalin & Weisbach, 2003). Fama and Jensen (1983) argue that a
board’s independence needs to be ensured at all times to mitigate self-serving managerial
behavior such as acquisitions undertaken at the expense of shareholder wealth. One way to
promote the independence of a firm’s internal governance system is to maintain an optimal
balance between its own directors and board members from outside the bank (Byrd &
Hickman, 1992).
   Using U.S. multi-industry and bank boards as samples, several studies show that the
number of independent directors or outside monitors can reduce agency costs in the context
of bank mergers (Brickley & James, 1987; Subrahmanyam, Rangan, & Rosenstein, 1997;
Byrd & Hickman, 1992), but their findings show limitations and criticism. For instance, Byrd
and Hickman’s (1992) results only hold when the ratio of inside directors to outside directors
is no more than 0.6. Brickley and James’s (1987) sample mainly covers only Midwestern U.S.
states, restricting the applicability of their results. Subrahmanyam, Rangan, and Rosenstein
(1997) do not consider loan relationship, leading to an overestimation of a bank board’s
   While board independence is an issue, due to independent directors probably not being
truly independent, previous studies suggest that the size of the board of directors has a
significant impact on firm performance. Adams and Mehran (2003) report that U.S. bank
boards between 1986 and 1999 were larger than those of S&P 500 manufacturing firms. The
mean board size is 12 for manufacturing firms and 18 for banks. Hermalin and Weisbach
(2003) find that compared with that of manufacturing firms, a larger board size of U.S.
banking firms is a function of organizational complexity and firm value. However, Jensen
(1993) suggests that as large boards have a greater emphasis on “politeness and courtesy” and
thus are easier for a CEO to control, small boards are more effective in monitoring a CEO’s
actions. Yermack (1996) finds an inverse relation between board size and performance and
posits that a large board size will harm firm value. Similarly, Cornett, Hovakimian, Palia, and
Tehranian (2003) report that the total number of directors on the board is significantly and
negatively related to abnormal announcement period returns. Thus, we propose the following

Hypothesis 2: Board size is negatively related with performance after bank M&A.

Board diversity

Previous literature suggests that a more diverse board could increase its effectiveness in
monitoring and mitigating the agency problem (Erhardt, Werbel, & Shrader, 2003; Shrader,
Blackburn, & Iles, 1997). The logic behind this is that the diversity of a board increases
creativity and innovation and produces a variety of perspectives so that the quality of decision
making by top management can improve (Maznevski, 1994). Ely and Thomas (2001) contend
that the dynamics of diverse groups may influence their capability for learning and
self-reflection, thus leading to a more activist board that is more likely to discuss a number of
issues. More diverse board may be contribute more to the ratification and monitoring of
decisions (Fama & Jensen,1983; Hagendorff, Collins, & Keasey, 2007).
   While theories suggest that board diversity is beneficial for corporate performance,
empirically the effect of board diversity on firm performance has been mixed. In fact, there
are very few references to the banking industry and almost no applications to the performance
effects of M&A activities. Shrader, Blackburn, and Iles (1997) present a positive relation
between gender diversity and firm performance at the middle and upper management level,
but not for the percentage of female board members. Goodstein, Gautam, and Boeker (1994)
find a negative relation between occupational diversity and diversification into new services,
because of increased conflicts among diverse members. Dwyer, Richard, and Chadwick
(2003) suggest that the beneficial aspects of gender diversity can be fully realized after a
more nurturing and supportive organizational setting is in place. Bantel and Jackson (1989)
find that more innovative banks are led by managers with higher education levels and more
diverse functional backgrounds. They argue that dysfunctional effects of heterogeneity occur
only when an extremely high level of diversity exists. Richard (2000) demonstrates that
cultural diversity adds value and contributes to a firm’s competitive advantage in the banking
industry. Theoretically, we propose:

Hypothesis 3: More diverse boards have a positive effect on the performance following bank


Dependent Variables

ROE after M&A is a dependent variable that we use to measure the performance following
M&A. To better measure the mid-term or long-term return following bank M&A as suggested
by Hagendorff, Collins, and Keasey (2007), we use Return on Equity (ROE) one year and
two years after banks have conducted mergers and acquisitions. The ROE is defined as net
income divided by total equity.

Independent Variables

Change in CEO compensation is defined as the change in CEOs’ full package compensation
including salaries, bonus, and other business allowances at the end of the year preceding and
after the M&A transaction.
   Managerial ownership is measured by the total holding percentage of the top-five
shareholders at the end of the year before M&A, because in most East Asian firms, managers
are members of the controlling families (La Porta, Lopez-de-Silances, & Shleifer, 1999).
Moreover, Demsetz and Lehn (1985) suggest that the fraction of the top-five largest
shareholdings is highly correlated with the Herfindahl index of ownership concentration.
Hence, it is a good measure for managerial ownership.
  Board size accesses the effect of such size on the performance after M&A. To avoid
arbitrarily using cutoff point and classifying which board size is appropriate or inappropriate,
we directly use the number of directors and supervisors as predictors.
  Education diversity adopts the widely accepted Herfindahl index and follows Goodstein,
Gautam, and Boeker’s (1994) method in constructing the measure of diversity for a panel of
Californian hospital boards by their occupational diversity. We develop a measure of board
diversity reflecting differences in education backgrounds. We classify board members into 13
groupings based on the colleges or fields (e.g. business, literature, law, engineering, etc.).
These groups should reflect the different perspectives that board members bring to the board.
We then compute a Gibbs-Martin Index of diversity based on the distribution of board
members within these groups. The Gibbs-Martin Index is defined as follows:
1   Pi ,

    i 1

where Pi signifies the proportion of a board represented by the ith group. This measure
indicates the extent of concentration from the perspectives of board members, ranging from
high concentration by one single school (valued 0 at the index) to low concentration by
various fields (valued 1).
  Gender diversity follows the logic of our prior measure in constructing the measure of
gender diversity. We classify the gender into three categories - male, female, and cannot be
identified - because some names of board members could be neutral. The values range from 0
to 1, representing the least and most diverse genders.

Control Variables

  Firm size is highly correlated with firm performance (Lee, Lee, & Pennings, 2001; Tsai,
2001). Thus, we add the total assets at the end of the year before the M&A as the control in
our research.
  ROE before M&A may also has an impact on performance after M&A and thus we control
for it. We use ROE at the end of the year before the M&A.
   Financial institutions merger act enforcement is used to evaluate whether the enforcement
of the Financial Institution Merger Act in 2000 has any effect on the performance after M&A.
This variable is a dummy one. If the M&A takes place before 2001, then the binary is set to 0
or otherwise is 1.


The sample focuses on publicly-traded banks that have conducted mergers and acquisitions
during 1990 and after 2000 in Taiwan. There were 54 mergers during the period. Deducting
those banks that do not go public, we have 48 records in our sample. Compared with a
sample size of 48 in the U.S. (Pilloff, 1996) and 51 in Europe (Cybo-Ottone & Murgia, 2000),
our sample should not be considered small. Since some of those banks went public late and
data cannot be accessed, we fill the missing data with the averages of other available banks in
order to finish the regression analysis without losing too much credibility.
  Bank M&A data are obtained from the Financial Supervisory Commission, Executive Yuan.
The M&A performance, board of directors, and compensation are collected from Taiwan
Economic Journal and annual reports of banks. Table 1 presents the descriptive statistics of
the full sample.
                               [Table 1 is inserted about here.]

   Table 1 displays that the average ROE following one and two years after M&A is
negative with a huge difference between the best and worst outcomes. The negative return
is not consistent with the prediction of standard economic theory, which argues that M&A
occurs in order to increase shareholders’ value. The gender diversity of the boards is still
limited with an indicator of 0.10 on average and with a small standard deviation.

                             [Table 2 is inserted about here.]

   Table 2 presents the correlation matrix between independent variables. To ensure that
the variables do not have the problem of collinearity, we calculate the VIFs among these
variables and find the values are below 10.

                              [Table 3 is inserted about here.]


Table 3 presents the empirical results. We demonstrate here our results in response to
three categories identified as the most important governance variables controlling for firm
size, past performance, and financial regulation. In these specifications, managerial
ownership is significantly positive with ROE after M&A, which is consistent with
previous studies that present executives as being concerned about their personal portfolio,
and these executives are more likely to conduct M&A that will generate shareholders’
wealth gains (Amihud & Lev, 1981). Since our managerial ownership measure also
represents shareholder concentration, the finding is similar with the view that high levels
of insider shareholdings and shareholder concentration can resolve agency conflicts
(Allen & Cebenoyan, 1991). To further explore the possible non-linear relation between
managerial ownership and corporate performance, we adopt piecewise linear regressions
with three dummies for ownership and divide the variable into three intervals, 5%-15%,
15-25%, and over 25% (see Morck, Shleifer, & Vishny, 1988 for a discussion of this
methodology and Filatotchev, Lien, & Piesse, 2005 for the intervals of firms in Taiwan).
Only the group 5%-15% is marginally significant and is positively correlated with the
ROE rate, suggesting that the entrenchment effect does not exist in Taiwan’s banking
  Board size is significantly negative with ROE after M&A. Although it is difficult to
decide the optimal board size, too many board members could harm shareholders’ value.
As for board diversity, we obtain that education diversity is good for performance,
whereas gender diversity is inversely related to ROE after M&A. However, since gender
diversity is only marginally significant in Model 3 of Panel A, the effect of board diversity
on bank M&A performance is not assured. The finding is consistent with the uncertain
roles of board diversity in the literature of governance.
   We do not see a definite impact of financial institution merger law enforcement on
performance after M&A since in all specifications the coefficients are not significant. We
also obtain a positive link between the change in CEO compensation packages and
performance after bank M&A, but the coefficient is not significant. It appears that while
some top managers’ compensation increases significantly after M&A, others see a decline
following failed mergers. If the test result were significant, then it would be similar with
the view that an increase in CEO compensation after mergers is due to task complexity
and managerial effort to realized merger-related gains (Anderson, Becher, & Campbell,


Due to the importance of banks on the economy and widespread shareholder value
destruction from bank M&A activities, governance of the banking industry is worth
further analysis. However, it is surprising to note that the influence of corporate
governance on the performance of bank acquisitions has received little academic scrutiny.
In addition, most of the literature concerning the links between bank governance and
M&A performance concentrates on the U.S. banking market where the results may not be
applied to other places around the world, because the systematic differences are
significant. Therefore, we focus on examining the link between corporate governance and
M&A performance using Taiwan’s banks as a sample.
   In a broad category of legal origin, Taiwan belongs to one of six German-civil rights
countries including Japan and South Korea. Taiwan’s investor protection rights can be
classified as intermediate compared with sophisticated investor protection rights in the
U.S. Hopefully, this research can be viewed as a comparable study between English
countries (common law) and East Asian countries (civil law).
   Using corporate governance indicators suggested by the literature, we find that
managerial ownership is significantly positive with bank M&A performance while board
size is significantly negative with the outcome of bank merger activities. Our results
suggest that the corporate governance mechanism has a significant impact on bank
acquisition performance. It appears that the findings of corporate governance structures
based on U.S. data can be applied to East Asia. From the result of this research, while
external regulation attempts to construct a relatively easy market for banks to engage in
M&A, sound internal corporate governance affects the performance of M&A in the
banking sector. Therefore, regulators may enhance the value effects of bank mergers by
establishing and implementing effective corporate governance frameworks and principles.


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            Table 1. Summary statistics of the full sample
            The sample period is between 1997 and 2006. The variable CEO compensation is in thousands of New
            Taiwan Dollars and firm size is in millions of New Taiwan Dollars.

Variables                                      Ob
                                                              Mean         Median           SD      Min.           Max.
ROE one year after M&A (%)                     48             -5.58              0.86     25.60   -135.64         21.09

ROE two years after M&A (%)                    48             -20.6              3.25    130.00   -888.00           21.2

Managerial ownership (%)                       48             65.45          65.45        27.75      5.60        100.00

Change in CEO compensation                     48              -771              -771     5,658   -28,220        15,507

Board size                                     48             16.22          16.00         5.17      7.00         32.00

Education diversity                            48              0.65              0.66      0.13      0.10           0.85

Gender diversity                               48              0.10              0.11      0.07      0.00           0.35

Firm size                                      48          500,954        320,736       478,661   64,354       1,965,943

ROE before M&A (%)                             48              6.85              6.85      6.60    -21.90         20.63
Financial institutions merger law
                                               48              0.68              1.00      0.46      0.00           1.00
      Table 2.    Correlation coefficients

                                    1.           2.           3.             4.       5.       6.       7.
1. Managerial ownership

2. Change in                        0.08
   CEO compensation                 (0.55)

3. Board size                       -0.41        -0.04
                                    (0.00)       (0.75)

4. Education diversity              -0.11        0.07         -0.05
                                    (0.45)       (0.63)       (0.69)

5. Gender diversity                 -0.26        0.10         0.10           0.21
                                    (0.07)       (0.48)       (0.49)         (0.14)

6. Firm size                        0.10         -0.07        0.00           -0.11    -0.11
                                    (0.49)       (0.59)       (0.96)         (0.43)   (0.43)

7. ROE before M&A                   0.36         0.05         -0.12          -0.31    -0.09    0.07
                                    (0.01)       (0.69)       (0.41)         (0.02)   (0.50)   (0.61)

8. Financial institutions           0.26         -0.03        -0.18          -0.15    -0.03    0.28     -0.09
   merger act enforcement           (0.06)       (0.83)       (0.22)         (0.27)   (0.79)   (0.05)   (0.50)
      Note: Numbers in parentheses are p-value. Italic indicates p < 0.10.
        Table 3. Regression analyses of performance after M&A on governance index and
        financial regulation

Panel A.                                                                  Panel B.
Dependent variable: ROE one year after M&A                                Dependent variable: ROE two years after M&A
                           Model 1       Model 2        Model 3           Model 4    Model 5    Model 6
Independent variables
Change in                  0.00                                           0.00
CEO compensation           (0.85)                                         (0.64)

Managerial ownership       32.30*                                         163.33*
                           (0.03)                                         (0.03)

Board size                               -1.56*                                      -6.69†
                                         (0.03)                                      (0.07)

Education diversity                                     24.17                                   159.50
                                                        (0.42)                                  (0.30)

Gender diversity                                        -89.75†                                 -278.80
                                                        (0.09)                                  (0.29)
Control variables
Firm size                  0.00          0.00           -0.00             0.00       0.00       0.00
                           (0.95)        (0.86)         (0.89)            (0.72)     (0.67)     (0.83)

ROE before M&A             0.01          0.38           0.63              -2.39      -0.34      1.22
                           (0.98)        (0.50)         (0.30)            (0.44)     (0.90)     (0.69)

Financial institutions 1.69              3.93           8.68              35.04      49.27      72.84
merger law enforcement (0.84)            (0.84)         (0.31)            (0.42)     (0.25)     (0.10)

N                          48            48             48                48         48         48

Adjusted R-square          3.0%          5.0%           0.0%              6.4%       4.8%       0.0%

        Note: Numbers in parentheses are p-value. *p < 0.05; †p < 0.10.

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