Research On The Effect Of Performance Commitments In M&A Of Y Enterprises

In recent years,mergers and acquisitions are gradually becoming an important way for companies to expand.However,problems such as information asymmetry and imperfect valuation systems in the M&A process have led to high premiums and high risks in the M&A market.As a result,M&A parties enter into performance commitment agreements to protect the interests of the acquirer and investors under the uncertainty of M&A benefits.However,the M&A parties usually make performance commitments that are not in line with the value of the enterprise in order to expand their own interests,resulting in a plethora of phenomena such as high goodwill and precise achievement of targets.Therefore,M&A parties need to further improve their performance promise schemes,optimise the effectiveness of performance promises and give full play to the positive effects of performance promises.Based on domestic and international literature on performance commitments,this paper focuses on research findings on the motivation and effects of performance commitments,and then defines the concepts of corporate M&A and performance commitments.Taking into account the market environment,the current situation of corporate M&A and performance commitment,the case of corporate Y’s M&A of corporate T is taken as the subject of this study,and the analysis is guided by information asymmetry theory,principal-agent theory and synergistic effect theory.The motivation for the performance commitment is divided into two aspects,namely reducing the M&A premium and increasing corporate value,and this is used as a starting point to analyse the effect of the performance commitment from two perspectives,namely the market effect and the incentive effect.In particular,the short-term market response is measured through the event study method and the long-term economic value is measured using the economic value added(EVA)indicator.In addition,the incentive effects of performance commitments were analysed from three dimensions: management,operational and financial synergies.The analysis found that the case of Enterprise Y’s acquisition of Enterprise T had problems such as the valuation of the underlying assets did not match the value,the management level did not match the development speed,and the business model could not cope with market changes.In view of the problems,countermeasures such as paying attention to preliminary due diligence,enriching performance assessment indicators and improving performance compensation clauses are proposed.Through the analysis of the case of Enterprise Y’s merger and acquisition of Enterprise T,the following conclusions were drawn: firstly,its performance promise proposal did not match its business situation and some of its motives were not realised;secondly,its performance promise released certain positive signals when it was first announced,boosting the stock price and generating excess returns.However,the high premium for the underlying assets did not generate sustained positive feedback from investors,resulting in a gradual decline in the cumulative excess return and,moreover,a negative cumulative excess return over the window of the commitment change date and the commitment non-achievement date;at the same time,the enterprise value as measured by the economic value added(EVA)indicator did not increase but rather decreased during the commitment period;again,the performance commitments did have an optimising effect on certain aspects of the commitment period Again,the commitment did have an optimising effect on certain aspects of synergies during the commitment period,but the overall effect was less than expected.Finally,this article only analyses the case of Enterprise Y’s acquisition of Enterprise T.The generalisability of the findings still needs to be tested.