Merger And Acquisition Risks Derived From Performance Commitments And Their Impact On Economic Consequences

As an economic means to optimize resource allocation and help enterprises to transform and upgrade,M&A has great strategic significance for enterprises.With the continuous advancement of my country’s supply-side reform,since 2014,my country’s mergers and acquisitions activities have become increasingly active,and the number of mergers and acquisitions has increased from 6,899 in 2014 to 12,7902 in 2021.However,due to information asymmetry and other reasons,mergers and acquisitions also have risks such as valuation uncertainty.Therefore,in order to alleviate the risks of mergers and acquisitions,mainly valuation risks,and protect the interests of investors,the China Securities Regulatory Commission promulgated the"Administrative Measures for Major Asset Reorganizations" in 2008,which requires companies to provide a profit forecast report of the underlying assets in case of major asset restructuring.Although the China Securities Regulatory Commission abolished the above regulations for unrelated third-party mergers and acquisitions after 2014,due to market inertia and other reasons,performance commitment agreements still often appear in unrelated mergers and acquisitions.However,along with the application of the performance commitment agreement,there are also situations such as failure to promise performance,denial of performance,and refusal of compensation.This means that performance promises do not 100%mitigate M&A risks,and their applications themselves may breed M&A risks.Therefore,this paper aims to identify the derivative merger and acquisition risks arising from performance commitment agreements,and the impact of these risks on the economic consequences of enterprises,in order to provide some guidance for enterprises to apply performance commitments in practice.This paper combines the research literature of past scholars and takes Dongfang Precision’s merger and acquisition of Pride as a case.Through the introduction of the whole process of the merger and acquisition of the case,the setting of the performance commitment agreement and the analysis of the value of the performance commitment agreement,the mergers and acquisitions before and after the merger are analyzed.Comparing the performance of the capital market with the financial performance,it is concluded that the performance commitments set by the company will breed the risks of M&A,including the risk of M&A consideration,the risk of short-sighted behavior of the management of the target company,and the risk of compensation fulfillment.These risks further affect the acquirer’s capital market performance and financial performance such as profitability and solvency.On this basis,this paper proposes that performance commitments should be treated rationally,M&A consideration should be paid reasonably,performance targets should be reasonably set from both the amount and the selection of indicators,and the supervision and incentives for the management of target companies should be improved to help companies alleviate performance commitments.