Comparative Study On Performance Compensation Commitment And Earn-out

Mergers and acquisitions are an important way for enterprises to achieve rapid development.How to better solve the problem of information asymmetry in M&A has always been a research hotspot of scholars at home and abroad.China's performance compensation commitment system is intended to maintain fair transactions,and the phenomenon of "high valuation and high commitment" frequently occurs in practical applications.The market has repeatedly experienced bad incidents of non-fulfillment of commitments or violations of commitments,which has caused concern from all walks of life.In this context,as the application of Earn-outs has matured abroad,many M&A transactions have begun to use this special payment method.In fact,performance compensation commitments and Earn-outs are both a type of gambling,so what role will each play in M&A activities?What are the similarities and differences in use and impact before,during and after mergers?Focusing on these two issues,this paper conducts research through the literature research method and case research method.Firstly,comparative research on performance compensation commitments and Earn-outs will help expand the current research on payment methods and valuation adjustment mechanisms.Secondly,by comparing the similarities and differences of the two special payment methods before,during and after M&A,it can provide more reference for the application of the two M&A payment methods in actual operation.At the same time,by analyzing the problems of the two payment methods,it also helps to further optimize the design of the M&A program.This article selects Blue Focus to acquire Bojie Advertising and WAVS,two typical cases that use performance compensation commitments and Earn-outs.Based on the analysis of performance compensation commitments and the motives and direct effects of the use of Earn-outs,the paper combine with the current status of the use of Earn-outs in China.From the perspectives of pre-merger use scenarios and financing pressures,different emphasis on specific program design in M&A,and potential problems after M&A,a comparative analysis of performance compensation commitments and Earn-outs was conducted,and the following research conclusions were drawn.(1)Both performance compensation commitments and Earn-outs have positive effects of reducing information asymmetry and adjusting valuation.However,the two also have problems of principal-agent problem,short-sighted risk,integration risk after M&A,and insufficient information disclosure risk.(2)There are many differences in the use of performance compensation commitments and Earn-outs,which are mainly reflected in four aspects:use scenarios,financing pressure,program design focus,compensation direction and risk commitment.The point of innovations mainly include:firstly,based on information asymmetry,signal transmission,principal-agent,and incentive theory,comparative analysis of performance compensation commitments and profitability Earn-outs;secondly,combined with specific analysis of existing typical cases using Earn-outs,summarize the characteristics of its use,and put forward corresponding suggestions.