Research On Financial Risk Management Of M&A Target Companies From The Perspective Of Financial Due Diligence

With the continuous development of the market economy and the improvement of the capital market,the M&A activities of Chinese companies are becoming more and more common.However,from the recent transaction data,the number of transactions and the transaction amount are gradually stabilizing.At the macro level,affected by factors such as economic slowdown,de-leveraging of the financial industry,and Sino-US trade wars,the level of supervisionhas become stricter,and domestic and foreign regulatory agencies have strengthened the review of M&Atransactionoperated by Chinese-funded enterprises.Currently,in order to increase the success rate of overseas M&A and enhance the value of M&Atransaction,companies must consider all aspects of a merger and acquisition project carefully.The information asymmetry risk in M&A transactions is the key to the success of a M&A activity,and its impact on the judgment of the value of target company.Financial due diligence is an important tool for dealing with the risk of information asymmetry of M&A transactions.However,due to the lack of sound theoretical guidance in financial due diligence,there are some problems in the actual operation.At the same time,the existing research combines the theory of merger risk management and financial due diligence,and the theoretical system needs to be improved.This paper mainly uses the combination of normative research and case study.The subject of this paper is the financial risk management research of the target company from the perspective of financial due diligence.Therefore,the research content includes the relationship between financial due diligence and the financial risk management of the target company;What is the core value of the financial due diligence to the target company's financial risk management;how to improve the effectiveness of financial due diligence applied to the target company's financial risk management.Based on the theory of M&A risk management theory,this paper defines the concept of the target company's financial risk in M&A transactions,which should be the risk brought by the uncertainty of the target company's financial information.Its content involves all aspects of the financial information of the target company,and it also defines its scope and focus through the consideration of the M&A process.The theoretical basis involves the relevant theories of M&A,the relevant theories of financial due diligence and the related theories of M&A risk management,and analyzes the guidence of these theoretical for the writing of this article.This paper selects H Airlines' acquisition of L Airlines as a case study.H Airlines always as an active player in the M&A market.L Airlines is a Belt and Road country.Both has typical characteristics of a M&A transactions.The case was analyzed mainly from the initial contact of the target company,understanding the target of the investor's merger and acquisition,the identification and evaluation of the target company's financial risk,and the target company's financial risk response.The main conclusions of this paper include:First,the financial risk of the target company is brought about by the uncertainty of financial information.This paper comprehensively analyzes it and divides it into seven categories.These matters has a significant impact on the ability to accurately judge the financial risk of the target company.Secondly,there is a strict theoretical relationship between financial due diligence and the financial risk management of the target company.The paper analyzes the relationship between financial due diligence and risk management elements;Thirdly,the core value of financial due diligence for the target company's financial risk management is identify,evaluate and respond to financial risks;finally,this paper proposes recommendations on how to improve the effectiveness of financial due diligence.The innovations of this paper are as follows:Firstly,the financial risks of the target companies are relatively comprehensively analyzed.The research object is the financial risks caused by the information asymmetry of the target company,and the identification,evaluation and response are carried out.Secondly,this paper studies the financial risk management of M&A target companies and analyzes the whole process of risk management using financial due diligence.The research perspective and objects are relatively new.Finally,most of the current research on financial due diligence focuses on the practical level.There are few related studies that link financial due diligence with M&A theory and risk management theory,and systematically analyze its internal logical relationship.The shortcoming of this paper is that each M&A project has certain uniqueness.Some programs,contents and methods proposed in the article may not have complete universality;the level of limited theoretical research and practical experience,The research needs further improvement and improvement;the conclusion of the paper needs further empirical test.