Study On The Reasons And Economic Consequences Of The Failure In Betting In Mergers And Acquisitions

Agreement on betting,also known as the valuation adjustment mechanism,was introduced into China with private equity investment from abroad in the 1990 s,and has since been used in corporate finance,mergers and acquisitions,and sharesharing reforms.In recent years,with the increase of mergers and acquisitions in China and the frequent emergence of high-premium mergers and acquisitions,the form of performance commitment agreement has been widely used in Chinese mergers and acquisitions.In 2010,there were only 31 listed companies and the reorganized parties that had signed performance pledges,and in 2015 they had reached 349.At the same time,the phenomenon of uncompleted performance commitments also gradually increased.The uncompleted performance commitments for 2012-2015 were 16%,20%,14%,and 22.34%.Based on the fact that the performance in the current capital market mergers and acquisitions is widely used for gambling and the failure rate is high and growing,i hopes to study the causes of the gambling failure and the economic consequences caused by the gambling in the case of mergers and acquisitions,and hope to find out the problems in the application of betting agreement in the capital market,and put forward some suggestions for improvement.In the first part of this article,I sorts out the previous research results on the connotation,mechanism,legitimacy,and application of gambling agreements in mergers and acquisitions.I finds that analysis of the failure of the betting most based on private equity investment,while the analysis of the agreement on betting in the merger is less,and the economic consequences of the failure of betting are less analyzed.In the second part of this article,i analyze the case of Xinhua Medical and Chengdu Yingde M & A on gambling.This article first briefly introduces mergers and acquisitions on the betting parties,the gambling process and the results.It provides a simple analysis of the motives of mergers and acquisitions and the reasons for the gambling.Subsequently,this article analyzes the reasons for the failure of the performance from macroeconomic,national policies,target company operating conditions,and the valuation of bets.The economic consequences of performance gambling failure were analyzed from the perspective of performance on gambling parties and other relevant stakeholders.In the last part of this article,I put forward some suggestions based on the conclusions of case studies and the problems existing in the application of gambling agreement in China’s.This article argues that the reasons for the failure of gambling between Xinhua Medical and Chengdu Yingde are as the followings.On the one hand,the actual performance under the influence of many factors such as macroeconomics,national policies,and the transformation of the target company has failed to meet expectations;on the other hand,it is the excessive valuation of gambling and short duration.The issue of the high valuation of gambling agreements is the general problem in China’s M&A performance-commitment agreement,and it is also one of the reasons for the failure of performance gambling.There are two reasons for the high valuation.On the one hand,imperfect performance incentive system leading to the problem of entrusted agency between its shareholders and management.The management tends to blindly promote the company’s performance by mergers and acquisitions.And on the other hand,the merger and acquisition company did not know enough about its own business development and underestimated the risk perception of gambling,and thus dared to sign a gambling agreement with a huge amount of compensation that it might not be able to afford.I believes that in order to improve this situation,it should be improved from three aspects.They are agency issues,risk control,and gambling rationality.On the one hand,companies should strengthen corporate governance,linking management performance in mergers and acquisitions with the long-term interests of listed companies rather than short-term performance,reducing the possibility of blind mergers and acquisitions due to management performance,and promoting the rationality of gambling.On the other hand,the rationality and fairness of the prediction of performance in the gambling agreement should be strengthened.The gambling parties should focus on risk control and increase the duration of the gambling to improve the long-term incentive and restraint effectiveness of performance on gambling.Moreover,this article still has some deficiencies.First of all,the research materials in this paper are limited,and the data collection of case study subjects Xinhua Medical and Chengdu Yingde is not sufficient.Second,the research level of me is not high and the research time is limited.So the analysis of cases is not comprehensive and in-depth.In addition,this article focuses on the performance promised form of the gambling agreement to analyzes the reasons and economic consequences of the failure of the gambling agreement in the merger and acquisition,and conducts research in a case-by-case manner,so it cannot represent the overall application of the gambling agreement in the merger and acquisition.