A Research On The Profit Compensation Mechanism In Merger And Acquisition Of Listed Company In China

As the expansion of stock market in china,the scale of merger and acquisition(M&A)of Listed Company is growing,which becomes an important factor affecting the stock market.Usually,there is serious information asymmetry in M&A of Listed Company,which may result in overestimating the profitability and value of acquisition targets,thus damaging the interests of Listed Company and investors.Therefore,how to establish an effective mechanism to suppress the behavior of overestimating the profitability and value of targets,prevent or reduce the risk of Listed Company M&A,protect the interests of Listed Company and investors,becomes the most concern of the regulators and investors.As a measure to solve the problem of overestimating the profitability and value of targets,"The Profit Compensation Mechanism" has been introduced into the M&A of Listed Company.When Listed Company carries out M&A,the Listed Company will sign a "Profit Promise and Compensation Agreement" with the relevant parties,and stipulate the net profit target of the acquisition target within certain period in the future.The relevant parties commit that if performance of the acquisition target fails to achieve the net profit target,they shall compensate the Listed Company in accordance with the agreement.Setting up the Profit Compensation Mechanism has a significant impact on the process and behavior patterns of related parties in the M&A,and completely change the mode and result of the M&A game?However,the Profit Compensation Mechanism has gradually revealed a number of problems,caused controversies and doubts about its rationality and validity.Does the Profit Compensation Mechanism restrict or indulge the behavior of overestimating the profitability and value?Does profit compensation effectively protect the interests of Listed Company and investors?To solve this controversies and doubts,this paper closely links with the practice of Listed Company M&A,applies research methods of theory analysis,mathematical deduction and game analysis,event research,statistical analysis and quantitative analysis,case analysis comprehensively,conducts a systematic research on the behaviors and results of related parties in the M&A.This paper firstly expounds the theoretical basis,institutional background,mechanism design and legal connotation of the Profit Compensation Mechanism in Listed Company M&A in China,and then executes static mathematical deduction and dynamic game analysis on the behaviors and returns of the asset-owners and investors under the Profit Compensation Mechanism,does empirical analysis on how Profit Compensation Mechanism effects the profit forecast,asset valuation,realization of the profit target,so as to signal transmission effects when disclose the profit forecast implementation in Listed Company M&A.Finally carries out a comprehensive analysis of the case of HUBEI BOTHWIN INVESTMENT CO.,LTD.The conclusions are as follows:(1)The Profit Compensation Mechanism has certain restraining effects on the valuation level of M&A.In the commitment period,the Profit Compensation Mechanism can stimulate the operator to achieve the profit target,thus protect the interests of Listed Company and investors to some extent.However,the short-sighted behavior caused by the profit compensation pressure leads to the unsustainability of the profit growth of the acquisition target after the commitment period.The Profit Compensation Mechanism cannot guarantee the long-term profitability of the Listed Company.(2)During the period of announcing the profit forecast realization of M&A,the share compensation has passed positive signal to investors,which may protect the interests of Listed Company and shareholders effectively,and has positive signal transmission effect on the share price of listed company.The failure of achieving profit forecast and need to compensate shows as "negative information",which has a significant negative signal transmission effect on the stock price of Listed Company.(3)When Listed Company undertakes M&A,the asset seller must take advantage of information and dominance right,build the Profit Compensation Mechanism on self-interest,rather than on the interests of Listed Company and investors.For Listed Company,the Profit Compensation Mechanism is just a short-term relief measure when M&A fails,which cannot change the long-term impact on Listed Company.The main contributions of this paper are:(1)Compared with those researches treats the Profit Compensation Mechanism as a practical operation problem,focuses on spicfic aspects of the Profit Compensation Mechanism in Listed Company M&A.this paper has promoted it as an academic theoretical topic,applies research methods of theory analysis,mathematical deduction and game analysis,event research,statistical analysis and quantitative analysis,case analysis,comprehensively analysis the theoretical basis,the profit forecast,valuation pricing,the behavior of related parties,protection the interests of investors,influence to the stock market,regulatory and institutional design in M&A,establishes the framework of the Profit Compensation Mechanism in Listed Company M&A.(2)Previous research has focused on setting Profit Compensation Mechanism or not,this paper goes deep into the detailed design of Profit Compensation Mechanism,does contrastive analysis on the different mechanisms design,and pioneering focuses on the critical issue of profit realization,refines the research content of Profit Compensation Mechanism.(3)Previous researches motstly analyzed the legal connotation of Profit Compensation Mechanism from the perspective of contract(contract).The paper further probes into the management,economic and financial connotations of Profit Compensation Mechanism from the perspective of institutional economics and behavioral finance,analyses its influence on the behavior and efficiency of Listed Company M&A,discusses the problem of system design and optimization,behavior model and interests balance,expands the research perspectives of Profit Compensation Mechanism.