The Research On The Incentive Effect Of VAM Agreements On Management In Corporate Mergers And Acquisitions

VAM agreement,also known as a valuation adjustment agreement,is primarily due to investors’ uncertainty about the future profitability of the target company,so as to bet in advance with the target company or its shareholders on the future company’s performance or other circumstances.If the performance VAM agreement is signed,then the two parties will agree on a target performance in advance,if the expiration fails to achieve the agreed target,the investor can compensate the investee in accordance with the agreement,so as to encourage the management of the investee to be more active in business behavior,and the performance of the enterprise will be better.VAM agreements are now used more and more frequently in China’s capital market,especially in corporate mergers and acquisitions,and in order to reduce the risk of mergers and acquisitions,most of the acquirers will sign VAM agreements with the acquired parties.Studying the incentive effect of VAM agreements on management in mergers and acquisitions can help provide a reference for enterprises to sign VAM agreements in M&A transactions.The main content of this paper is to analyze the incentive effect of VAM agreements on management in mergers and acquisitions and their influencing factors.First of all,starting from the basic theory of VAM agreements,four theoretical assumptions are proposed according to the basic situation of Chinese listed companies signing VAM agreements in mergers and acquisitions.Then collect data related to corporate mergers and acquisitions and gambling agreements online,collate the data and conduct descriptive statistics.In the empirical test section,this paper selects three sets of core variables of whether to sign a VAM agreement,the compensation method of the VAM agreement,and the one-way or two-way VAM as explanatory variables to verify the incentive effect of the VAM agreement and the difference between the incentive effect of the VAM agreement with different terms.In the selection of explanatory variables,because the incentive effect of management is difficult to measure directly,it draws on relevant theories and previous research conclusions,and uses the financial performance indicators of enterprises as the explanatory variables to indirectly measure the size of the incentive effect of management.At the same time,the data of enterprises signing VAM agreements for three consecutive years are selected,and whether the incentive effect of VAM agreements is sustainable in time is verified through horizontal and vertical dimensions.Finally,based on the empirical results,it is concluded that the signing of a VAM agreement in a corporate merger and acquisition can play a role in motivating management,the incentive effect of two-way VAM is better than that of one-way VAM,and the incentive effect of shares or mixed compensation on management is better than that of cash compensation.The innovation point of this paper is that,compared with the previous separate study of VAM agreements or corporate mergers and acquisitions,this paper combines the actual needs of M&A enterprises to prevent risks,and studies the incentive effect of VAM agreements under the framework of mergers and acquisitions,which is of more practical significance.Second,this paper selects the data of the target company for three consecutive years after signing the VAM agreement,and studies whether the incentive effect of the VAM agreement is time-lasting.Third,this paper analyzes and compares the differences between different clause features such as compensation methods and two-way or one-way VAM agreements.The shortcomings of this paper are that the number of control variables needs to be further supplemented due to the poor availability of the underlying enterprise data.