Enormous Performance Commitment: Guarantee Mechanism Or Arbitraging Tool

As the vital mechanism design to prevent from over valuation of the buys,performance commitment was aimed at remitting the information asymmetry in M&A,guaranteeing the performance levels of the target,protecting the benefit of the listed company and the minority shareholders.But in recent years,the phenomenon of high performance commitment,and low achieved rate was commonplace.In 2013,several institutional investors buy into the listed company A in low price,through a private placement.The high performance commitment was promised.The high performance commitment supported the high price,which help holder of the target gain excess earnings.At the same time,the high commitment drove up stock price while the institutional investors cashed out in on a share price that had soared.But in the end,the achieved rate was awfully low and the company who had promised shrank the responsibility to pay the compensation.This paper analyzes the motive,the effect and the risk points of the high performance commitment,from the aspects of the safeguard mechanism and the arbitraging tool.It show that,the motivation of the high performance commitment,is not only simplely as the guarantee mechanism,but also to drove up the valuation and the stock price.The effect of performance commitment to protect the buyer and minority shareholdersis didn't realize.The high performance commitment may become the tool that drove up the valuation and the stock price.It initiated the risks of valuation,arbitraging and evasion of responsibility of compensation.In order to guard the risks,changing the way of the compensation should be banned,the hypothecation of the restricted stocks should be restricted and the regulations of information disclosure of the target price should be strengthened.