Research On The Impact Of Gambling Agreement On Business Performance In Mergers And Acquisitions

In early 2003,Mengniu and foreign investment institution Morgan Stanley signed the first domestic gambling agreement.In 2010,the gambling agreement began to be used for M&A transactions of domestic listed companies.As of 2017,27.71% of M&A transactions have involved the gambling agreement.Looking back on the development of the gambling agreement,it can be seen that the application of the gambling agreement in Chinese enterprises is more and more extensive,and has become one of the most important contracts in M&A transactions.The gambling agreement can not only pave the way for the investment of private equity funds and investment institutions,and escort the successful completion of the M&A transaction and integration stage,but also help managers create business value and improve the transaction efficiency and fairness of China’s capital market trading mechanism,it is of great significance to the development of China’s diverse capital market.The purpose of this paper is to study the impact of the gambling agreement on the business performance of the target company in the M&A transaction,whether the signing of the gambling agreement will cause the company to pay too much attention to short-term benefits and ignore the long-term development,and whether the different terms of the gambling agreement have different effects on the business performance of the company.The topic of the thesis is in line with the current situation of China’s M&A business,which not only has important guiding significance for the decision-making of microeconomic enterprise,but also has important value for establishing a sound capital market trading mechanism and government supervision.Firstly,based on the theory of information asymmetry,signal theory,principal-agent theory and game theory,this paper proposed four research hypotheses in which gambling agreement and its terms may have different effects on the business performance.Then,we collected the M&A transaction documents of the small and medium-sized(SME)enterprises and the GEM companies in 2015-2016,and empirically analyzed the data of the business performance before and after the M&A,the basic situation of the company,the existence of the gambling agreement,the specific terms of the gambling agreement,etc.The empirical results show that the gambling agreement can improve the business performance of the company in the first year after the merger,but it has a negative impact on the company’s business performance improvement in the second year,that is,the increase rate of ROA of the gambling enterprise will not be comparable to that of non-gambling enterprises in the second year after the merger.This shows that there is a lack of stamina for gambling companies after signing a gambling agreement.The reason may be that the managers pay more attention to achieve the promised performance in the short term and ignore the long-term development of the company.The empirical analysis of the specific terms of the gambling agreement shows that the two-way gambling agreement that stipulates the excess performance reward can stimulate the business performance,the share compensation clause has greater incentive effect on the enterprise,and the impact of performance commitment level on the financial performance of the enterprise is not significant.The above empirical results can provide appropriate advice for the parties to negotiate the gambling agreement in future M&A transactions,that is,how to achieve a win-win situation for both the acquirer and the acquired company by rationally designing the terms of the gambling agreement,and also help to enhance the success of the merger and the integration of M&A.Therefore,this paper has very important practical significance.Although the gambling agreement has become an important contract in the M&A transaction,the government must do a good job of supervision.The M&A company must also conduct a full-scale and prudent investigation before deciding to use the gambling agreement.The target company should negotiate with the M&A party on the performance commitment goal based on its actual capability.The two parties should set the gambling clause under the premise of legality and rationality.After the merger,the managers should not only strive to achieve the performance goal,but also pay attention to the long-term development of the enterprise,so that the gambling agreement truly becomes a tool for promoting mutual win-win between the two parties.