The Compensation Commitment In Reverse Merger And The Interests Protection Of Minority Shareholders

The Measures for the Administration of Material Assert Reorganization of Listed Companies provided that the listed company should sign the performance pledge compensation agreement with the seller to guarantee the profitability of the asset if using the income present value method or the hypothesis development method to evaluate the value of underlying assets in the acquisition and reorganization.Also,it asserts that the compensation way is limited in equity compensation in the reverse merger to reduce the information asymmetry in the acquisition and reorganization and safeguard the interests of the shareholders,especially the minority shareholders.In recent years,with the expansion of the reverse merger’ scale,the performance commitment failure rate is also on the rise,the problems associated with it are becoming increasingly prominent.Therefore,whether the performance pledge can protect the interests of minority shareholders is gradually attracting the attention of investors.The paper selects the Honggao Creative making reverse merger with the D.G.M.E as the research target.Firstly,the relevant theories are interpreted and combined with cases to provide theoretical basis for case analysis.Then the paper explains the concept of performance commitment,and analyzes the current situation of reverse merger performance and the protection of minority shareholders’ interests.In the case studying,the commitment period is chosen as the studying period,and the thinking of the case study is on the basis of the impact of performance commitment on company management,the effect of compensation obligation on the interests of major shareholders,the behavior of major shareholders,the degree of protection of the performance commitment to the interests of minority shareholders and the accounting treatment.The paper uses event research method,case study method and logical reasoning method to comprehensively analysis the performance pledges can protect the interests of minority shareholders or not.The following are the results of the study.Firstly,the unfinished rate of the performance pledges is on a rise,major shareholders may infringe upon the interests of minority shareholders to escape liability.Secondly,it is difficult to limit excessive valuations by the compensation obligation.Thirdly,Honggao Creative adapted aggressive management measures or financial fraud to meet performance commitment when the regular management measures did not work.Fourthly,the market reaction of share repurchase cancellation is relatively cold,minority shareholders do not believe that it can protect their own interests effectively.Fifthly,share buyback is better than share repurchase cancellation.Sixthly,there is room to improve for post-phase compensation measures.Seventhly,the accounting treatment shows that the share buyback can implement the share compensation of the major shareholders,but there is lack of timeliness of the impairment test.There are few literatures about the performance commitment and the protection of minority shareholders’ interests.The paper can enrich the relevant literatures with real case.The shortcoming is that only a single case is analyzed,the point of view may be relatively one-sided without empirical analysis,and further evidence is needed.