| Since the government promulgated a series of policies which encourage mergers and acquisitions in 2014,the mergers and acquisitions cases in China have continued to increase,followed by the increased premium rate of mergers and acquisitions,which brought the so-called "three highs" issues.They are high goodwill,high valuations and high performance commitments which often lead to huge impairments of goodwill.With the performance compensation commitments having expired in recent years,goodwill impairments cases are not uncommon.According to the statistical data from the 21 st Century Business Herald,from January 2018 to June2020 the Shenzhen Stock Exchange focused on the issues of goodwill and goodwill impairments among 577 annual report inquiry letters and 225 attention letters.In recent years,the regulatory authorities have attached great importance to the issues of the impairments of goodwill,so it is of great importance to study how to prevent goodwill impairments.Under the prevention of impairment of goodwill,performance commitments are widely used,which can motivate management and hedge the risk of impairment of goodwill.At present,more and more company mergers and acquisitions are using performance promises,but the proportion of performance promise failures are increasing.Therefore,how to correctly and reasonably use the internal mechanism of performance promises,recognize the pros and cons and risks of performance promises,and maximize the effect of performance promises in preventing the impairment of goodwill need to be explored further.At first the paper elaborates the background and significance of the research,sorts the related literature on goodwill and performance commitments,and analyzes the relevant theories and the current situation of Chinese M&A market to provide theoretical and practical foundations for the subsequent research.Then it takes Zotye Automobile as the research object,analyzes the causes of the huge goodwill and goodwill impairments of the case company from the three aspects: valuation premium,M&A market environment,and payment method of M&A consideration.The three aspects of the business environment analyze the reasons for the failure of the acquired party’s performance commitment,and then use the financial analysis method and the event research method to analyze the economic consequences of the huge goodwill impairments of the case company.The study found that the using of income method for valuation and the using of share-based payment considerations often easily leaded to the formation of high-premium mergers.The acquired party’s commitment to performance was too high,the business performance after the merger missed forecasts,and the changes in the external operating environment might make performance commitments difficult to achieve.Meanwhile,it also found that the performance commitments in this case failed to effectively reduce the risk of information asymmetry and hedge the risk of impairments of goodwill and the huge impairment of goodwill also brought great negative effects to the company.Finally,based on the conclusions of the case analysis,relevant suggestions are raised before and after the performance commitment was signed. |
