An Effect Of The Value Adjustment Mechanism On M&A Premium

The China Securities Regulatory Commission(CSRC)issued Measures for the Administration of Major Asset Restructuring of Listing Corporation in 2008,which commanded to sign the Value Adjustment Mechanism(VAM)if there was big difference between real earning capability of assets with excepted earning capability,when the price of underlying assets was based on expected future returns.To a certain degree,VAM could help to solve the price disorder,protect the interests of minority shareholders and other issues.With the extensive application of VAM in the merger and reorganization market,it gradually exposed the drawbacks of the system.The paper is intended to explore the effect of VAM on M&A premium with the data from 2013 to 2016.Firstly,the paper is going to analyze the different effect between transactions with the VAM and transactions without the VAM.Secondly,the paper will analyze regulatory effects of reorganization methods and the target enterprise size.Lastly,the paper will show how different kinds of VAM affect the result.Through theoretical analysis and empirical correlation,the paper will draw following conclusions.Firstly,the premium rate of M&A with VAM is obviously higher than the other.Secondly,VAM with restructuring related has a greater impact on the premium rate of M&A.Thirdly,the smaller the size of the target enterprise,the higher degree of effect on VAM to premium rate of M & A.Lastly,kinds of VAM has no significant impact on the premium rate of M&A.Therefore,the paper suggest that the CSRC should formulate relevant measures to safeguard the implementation of the Revision of Administration of Major Asset Restructuring of Listing Corporation;In the long run,we should cancel the VAM with restructuring related;Regulators should increase supervision and breach of contract penalties,when the two parties sign the VAM spontaneously;Encouraging listed companies that voluntarily sign the VAM to sign a double-side VAM.There are three possible innovations in this paper: one is perspective innovation.In the past,scholars didn't discuss how the VAM affect M&A premium,this article innovatively analyzes the specific mechanism of action between the two.The second is classification innovation.Most of our predecessors divide VAM into two types: share-based compensation and cash-based compensation,but this paper divides VAM into single-side and double-side compensation and explores its impact on M&A premium.Last one is research design innovation.Combined with the status quo of the reorganization market in our country,we further explore the regulatory effect of the reorganization method and the target enterprise size on the VAM and M&A Premium in the empirical design.The research in this paper will provide a reference for the CSRC to further improve the VAM.