Identification And Prevention Of B Company Earnings Management Based On Merger Betting Agreement

The phenomenon of betting with performance commitment in enterprise mergers and acquisitions is becoming increasingly common.However,the merger and acquisition betting mechanism is not mature in China,and enterprises violate the original intention of this system design in the process of exploring and application of performance betting.In order to obtain high valuation and high premium,the two parties of the merger and acquisition will make more practical agreement on the performance in the merger and reorganization,resulting in an increased difficulty of reaching the performance standard.According to the data statistics of the merger and reorganization report,from 2016 to 2020,the 13,156 merger and acquisition enterprises in China that signed performance commitments were as high as 65%,and about 77% of them completed the performance commitments,but most of them accurately completed the performance,and the abnormal phenomenon of profits plummeted after the commitment period.The reason for this phenomenon may be the result of accurate prediction of future performance,or the application result of enterprise earnings management.Therefore,it is a practical research topic to identify and prevent the surplus management behavior existing during the performance commitment period of merger and acquisition gambling enterprises.This paper is based on the event of company B’s merger and reorganization and the performance commitment of non-net profit for three years,which aims to identify the means and characteristics of earnings management under the pressure of performance betting,and put forward preventive countermeasures accordingly.During the performance betting period,Company B fluctuated within a small range of 100% of the completion amount,and failed to complete the promised profit in the third year,and finally in 2019,the effort to "step on the line" to complete the performance betting.After the end of the performance commitment period,Company B quickly entered the awkward stage of performance reversal,which shows that the profitability of improving short-term performance through earnings management during the performance betting period is not sustainable.Therefore,this paper through the same industry comparison,financial analysis,using modified Jones model,combined with industry data measure and analyze the company’s financial data,according to the parent net profit face,abnormal operation,repeatedly received inquiry letter,judge the company in the performance during earnings management behavior,discuss inhibition,to a certain extent to alleviate performance bet abuse problems and the small and minority shareholders interest protection problems.On the basis of sorting out the literature,this paper analyzes the horizontal and longitudinal financial data and other business information of Company B during the performance betting period and for several years through the case study method,and identifies its earnings management behavior during the performance betting period.Research shows that in order to achieve the performance during the bet successfully completed the purpose of promised performance,to avoid the default terms of punishment,B company took the overvalued r & d capitalization amount,using the new related party for huge transactions,to sell related party loss subsidiary,adopt relatively loose credit policy earnings management,B company earnings management method has strong concealment,the characteristics of early earnings management strength,difficult to be found by regulators.In addition,Company B mainly conducts surplus management based on the capital market,compensation contract and regulatory drivers.Finally,based on the above analysis,this paper puts forward three preventive countermeasures to improve the information disclosure system,optimize the setting of performance terms,and strengthen the supervision and punishment.