Research On Earnouts And Earnings Management In Backdoor Listing

Since 2013,the M&A market has heated up,and Earnouts have begun to appear in the Chinese A-share market as credit enhancement activities for both parties in M&A transactions.Earnouts are signed by the two parties to the merger and acquisition transaction,and the target company or its major shareholder makes a commitment to the owner and the company regarding the business performance of the target transaction in the future in a certain period.When the target of the transaction fails to complete the business performance agreed in the agreement within the agreed period,certain compensation must be given to the owner and the enterprise.In recent years,with the expiration of earnouts and the frequent occurrence of goodwill thunderstorms,the negative effects of earnouts have gradually attracted attention.Limited by the availability of data,previous research has focused on the incentive effects of earnouts,the relationship between earnouts and corporate governance.Nearly all the research are done from the perspective of acquirer,and few have studied from the perspective of the target company.This paper uses China A-share listed companies' Backdoor Listing data from 2010 to 2018 to conduct an empirical test on the earnouts and earnings management behavior from the perspective of the target company.Limited by the availability of data,most of the previous research on earnouts has been conducted from the perspective of the merger company.But after Backdoor Listing is completed,the underlying assets are injected into the listed company.The research can be extended to the perspective of the target company.Based on previous research,this article further deepens the relationship between earnouts and earnings management.It examines the existence of earnings management during the commitment period,the characteristics of earnings management and the relationship between performance distribution and earnings management.Through theoretical analysis and empirical test,the research in this paper finds that the earnings management level of the target company during the commitment period is significantly higher than the earnings management level after the commitment period,indicating that the target company does do more earnings management behavior during the commitment period.There is a positive correlation between accrued earnings management and real earnings earnings management,indicating that there is a complementary relationship between the two.On the issue of time distribution of earnings management during the commitment period,this study finds that the target company's earnings management behavior during the commitment period presence"primary effect".The level of earnings management in the first year of the commitment period is significantly higher than that in the second and third years,and there is no significant difference between the levels of earnings management in the second and third years.As for the relationship between achieved performance and earnings management,this paper uses Logit regression to find that the higher the level of earnings management of the target company during the commitment period,the more likely it is that its perforamance achievement rate will fall in the "God Forecast" range.Compared to previous studies,the research in this paper extends the perspective of earnouts research to the negative effect—earnings management.It not only tests the existence of earnings management,but also analyzes the characteristics of earnings management during the commitment period.The relationship between reaching distribution and earnings management was discussed in more detail,which enriched the research content of earnouts.At the same time,for the practical world,the research in this paper implements the distribution between earnouts and earnings management.It reminds investors to pay attention to the true performance of companies in the "God Forecast" range,encourages both parties to M&A transactions to pay attention to earnouts pricing arrangements,urges regulators to improve the supervision mechanism,and urges targets It is of great significance for enterprises to improve their internal governance and control.