A Study On The Impact Of Performance Commitment On M&A Performance

M&A is an important way to expand market share,optimise industrial structure and achieve optimal allocation of resources,but due to the existence of information asymmetry,cases of M&A with high valuations and high premiums are common.In order to regulate the M&A and restructuring behaviour of listed companies,avoid different expectations of the company from both parties and prevent and reduce the risk of M&A transactions,performance compensation commitments have been widely adopted in the M&A market.However,with the expiry of the performance commitment period of enterprises one after another,many problems have gradually been exposed.In view of this,this paper conducts an empirical study on the economic effect of entering into performance compensation commitment agreements during M&A of GEM listed companies in China and explores in depth the application of performance compensation commitment agreements in practice through case studies.This paper first uses the M&A and restructuring events of GEM listed companies that occurred from 2013 to 2019 as a sample and conducts an empirical study through multiple linear regressions to examine the relationship between performance compensation commitments and specific terms and long-and short-term M&A performance.The results of the empirical tests show that: firstly,the M&A performance of listed companies with performance compensation commitments is significantly enhanced after M&A restructuring under the signaling and incentive effects;secondly,the paper divides the content of specific terms of performance commitments,and the results show that the growth rate of promised performance is in an inverted U-shaped relationship with M&A performance,and the growth rate of promised performance is set at a reasonable range to achieve positive incentive effects Thirdly,the effect of performance commitments in the form of equity compensation on M&A performance is more significant than that of cash compensation.Secondly,the statistical analysis of performance achievement during the commitment period shows that:firstly,the overall performance achievement rate of the sample enterprises during the commitment period is not high;secondly,there are significant differences in performance achievement under different performance terms.In view of the low achievement rate of the sample of performance commitments,and in order to explore the specific problems in practice,this paper selects the typical case of Fuchun’s merger and acquisition of Mochicaca as a research sample and uses the case study method to identify the problems in the application of performance commitments between the two parties,including: the high valuation given by the acquirer,the high performance target set by the merged party,the unreasonable compensation method and the poor post-merger integration effect.The paper also makes recommendations on the prudent selection of M&A targets,the search for reliable valuation agencies,the rationalisation of commitment agreements and the strengthening of post-merger integration supervision.The findings of this paper provide empirical support for potential market participants in predicting the benefits of M&A,as well as insights into the decision-making process of M&A and restructuring of listed companies,and policy references for regulators to optimise the performance compensation commitment mechanism.