Value Adjustment Mechanism In Major Restructuring And Analyst Forecast Accuracy

Merger and Acquisition is one of the main means for enterprises to carry out the strategy of expansion,enhance the core competitiveness and boost the performance of the company.As the core term of the M&A transaction,the value adjustment mechanism(VAM)helps reduce the information asymmetry between both sides and has been widely used in M&A transactions.However,it was common that VAM in some cases does not work very well,and directly affect the overall performance of listed companies and stock price volatility,damaging the interests of minority shareholders.As the information intermediary in the securities market,analysts can provide investors with useful information through earnings forecasts,thus affecting the capital market resources allocation.When analysts research on the material assets reorganization of listed companies,how to interpret the VAM information will inevitably affect analysts' earnings forecast,valuation model and investment advice.Based on Major restructuring events from 2011 to 2015 in China stock market,this paper systematically studied the influence of VAM on the accuracy of analyst earnings forecasts,while considering the adjustment impact of the ownership structure of listed companies and the influence of analysts' trust or not on the VAM.Through theoretical analysis and empirical test,the author drew the following conclusions.First,the analysts' earnings forecasts are more accurate in samples with VAMs than those without.Besides,in the samples with VAM,two-way value adjustment mechanism and cash compensation can exert great effects on the analysts' prediction.It will improve the accuracy of the forecasts.Second,good check-and-balance of stock ownership can significantly enhance the positive effect on the relation between VAM arrangement and analyst forecast accuracy,which is more significant in the related transactions.Finally,if analysts revised their forecasted earnings too much based on promised numbers,their prediction accuracy reduced to a certain extent,which related to the optimistic bias led by the overreliance.Although the VAM has been popular in modern business world,especially in M&A transactions,related academic literatures are rare.This paper not only firstly discusses VAM and analyst forecasts within the same framework,provides new empirical evidence for the impact mechanism of analyst forecasts behavior,but also helps regulators better understand the practical influence of value adjustment mechanism on the capital market participants,which brings some lights for the small and medium investors in terms of the interests protection.