Research On The Advantage And Disadvantage Of Performance Commitment In Merger And Acquisition

In recent years,with the rapid increase in the speed of my country’s economic development,Mergers and Acquisitions,as an effective way to expand the scale of enterprises,are being accepted by more and more enterprises.Performance commitments used in Mergers and Acquisitions are also increasingly favored by both parties to Mergers and Acquisitions.Performance commitment can cut the agency cost between Mergers and Acquisitions,reduce the risk of information asymmetry,and have a certain incentive effect on the merged company.However,in practice,performance promises are suspected of changing tastes.For example,performance promises have negative effects such as financial fraud,valuation risks,damage to the rights and interests of small and medium shareholders,and loss of management rights.As performance promises are used more and more widely,their drawbacks have become more and more obvious.Therefore,as a participant in the capital market,it is particularly important to understand the advantages and disadvantages of performance promises and how to distinguish the authenticity of performance promises from company performance.This article first uses the literature research method to explain the relevant theoretical basis of performance commitments,and proposes that performance commitments not only have the advantages of reducing information asymmetry,transmitting "good" signals,and incentive effects,but also may bring high valuation risks.Damage the interests of small and medium shareholders,financial fraud risks,and strategic risks;Secondly,using case analysis,through the analysis of the content of the performance promises of the solar energy company and the Shen Wu environmental protection company,the performance of the performance and the reasons for the success or failure of the performance promise,highlight the existence of the performance promise advantages and disadvantages;Finally,using the comparative analysis method,the reasons for the success or failure of Shen Wu Environmental Protection and the solar energy company are compared,and the focus of market investors on the true and false analysis of performance promises is summarized.This paper analyzes and studies the effects and reasons of performance commitments by solar energy companies and Shen Wu Environmental Protection.First,a reasonable performance commitment can effectively reduce the information asymmetry between Mergers and Acquisitions and reduce the risk of Mergers and Acquisitions;The performance pressure of the company urges the acquirer to fully develop the enterprise,so it has a certain incentive effect;second,too high performance commitment targets will bring strategic risks and financial fraud risks.The acquired party should determine a reasonable performance commitment plan based on its strategic objectives,its own real financial status and forecasted future operating conditions;third,investors should maintain a cautious and rational investment attitude when facing listed companies that have implemented performance commitments.It is necessary to pay attention to the merger method adopted by both parties during the merger,the rationality of the performance commitment target setting,and the existence of financial fraud risks.Finally,this article combines the conclusions drawn and puts forward corresponding suggestions on how to treat performance commitments from the three dimensions of enterprises,investors,and regulators.The innovation of this paper is to compare and analyze the different results of Shen Wu Environmental Protection and Solar Energy after the implementation of performance commitments.It points out that investors can use independence in mergers and acquisitions,earnings management and financial fraud risks,and performance when facing performance commitments.Use these three aspects to identify whether the implementation of this performance promise is really beneficial to listed companies.At the same time,the shortcomings of this article are the lack of universality of the case and the subjective risk when studying the market reaction.The discussion on the performance promise needs further research in the follow-up.