Research On The Function And Effect Of Performance Compensation Agreement In M&A

As China’s economy enters a new normal and the country pushes forward with supply-side reforms,the business of a number of listed companies in traditional industries has been hit and the market value has been sluggish.At the same time,some companies with technological advantages in emerging industries urgently need capital to seize market opportunities.As a result,there has been a wave of mergers and acquisitions of companies in emerging industries by traditional industries.Traditional enterprises can realize industrial transformation through mergers and acquisitions,enhance the company’s market value,and emerging companies can enter the capital market through mergers and acquisitions,quickly raise capital and grow their main industries.However,because companies in emerging industries often have high technical content and high added value,it is difficult to evaluate the value of these companies,and the acquirer is facing a higher premium risk.In this context,performance compensation agreements have been widely used.The performance compensation agreement,as an important mechanism to prevent the unrealistically high valuation of the successful bidder,played an important role in mitigating information asymmetry,protecting the performance of the target company,and protecting the interests of small and medium shareholders in merger and acquisition transactions during the share reform period.With the rise of three-partyM & A transactions,in recent years,some companies have fallen into the dilemma of performance compensation disputes because the performance of the target company is not up to standard.Whether the performance compensation agreement can play the expected role in mergers and acquisitions has become a concern.In order to explore this issue,based on the existing research on the effect of performance compensation agreements,this article describes the mechanism of performance compensation agreements in mergers and acquisitions by combining information asymmetry theory,signal theory,and incentive theory.The case is the research object.The actual role played by the performance compensation agreement in this case is analyzed,the reasons for the poor application effect are pointed out,and related suggestions are put forward,which can be used as a reference for other enterprises to sign performance compensation agreements in mergers and acquisitions.Through research,it is found that under the current environment of imperfect market economy,the performance compensation agreement signed in mergers and acquisitions will play a positive role,and it will also generate some risks,which will sometimes make enterprises face greater challenges.Therefore,companies should carefully select the target company,conduct full due diligence before using the performance compensation agreement,and when designing the performancecompensation agreement,formulate terms flexibly according to their environment.After the merger and acquisition,it is necessary to improve the supervision mechanism and strengthen the supervision of the target company.