Study On The Impact Of Performance Commitments On The M&A Premium

In recent years,with mergers and acquisitions market increasingly booming,performance commitments are widely used in M&A deals.Over the past three years,there have been some new problems in the M&A market,such as“high performance commitments,high M&A premium" phenomenon.The original intention of performance commitments is to promote the performance of fair pricing and protect the interests of minority shareholders.But new problems have shown that high performance commitments promote M&A premium in recent years.Therefore,this paper is intended to investigate the impact of performance commitments on M&A premium and how the performance commitments influence M&A premium.In this paper,319 Major Assets Restructuring events of Listed Companies completed between 2014 and 2016 are selected as samples.Manually collected,first of all,these data are used to summarize the application of performance commitment system.Then,the empirical study is conducted on the impact of the performance commitments on the M&A premium and how to influence.Investigation results show that the performance commitments make a difference to the M&A premium through signal function,option function and incentive effect.If there is performance commitment in the M&A deal,underlying asset will get a higher price and a higher M&A premium.In the M&A deal,the original shareholders of the underlying assets,who bear the performance commitments and compensation agreements,will get higher price and higher M&A premium than the original shareholders who don’ t.The empirical results show that there is a very significant positive correlation between the degree of performance commitments and the rate of M&A premium.In the M&A deals with higher degree of asymmetric information,the performance commitments have a more significant impact on the M&A premium.However,the performance commitments with performance rewards do not have a more significant impact on the M&A premium.So we can conclude that the impact of performance commitments on the acquisition premium is mainly based on information asymmetry,through the signal function and option function.Through the path of incentive effect,the impact of performance commitments on M&A premium is not significant.What’ s more,the valuation adjustment function of performance commitments will not have an impact on the M&A premium in reaching a merger agreement,which will just adjust the merger premium after completion of the merger.