Research On The Incentive Effect Of The Value Adjustment Mechanism In The M&A

Trading price is the most important in the M&A transaction, and the fair price will largely affect the success of the merger and the acquisition. Now more and more companies would like to use the value adjustment mechanism in the M&A transaction because of its usefulness. According to incomplete statistics, there are 12 M&A transactions in the SME board and ChiNext Board in 2010, while it increased to 89 in 2013. The China Securities Regulatory Commission issued Measures for the Administration of Major Asset Restructuring of Listing Corporation in 2014, which suggested to sign the value adjustment mechanism if there is big difference between real earning capability of assets with the excepted earning capability. To a certain degree, the value adjustment mechanism could help to solve the price disorder, weaken merger asymmetric information, protect the interests of minority shareholders and other issues.The paper is intended to explore the incentive effect of the value adjustment mechanism with the data from 2010 to 2013. The M&A transaction happened in the SME board and ChiNext Board. The paper is going to analyze the different affect between transactions with the value adjustment mechanism and transactions without the value adjustment mechanism in order to know how the value adjustment mechanism inspire the shareholders to work harder. At the same time, the paper will show how the different kinds of articles affect the result.Through theoretical analysis and empirical correlation, the paper will draw the following conclusions. First, the performance of M&A transaction with value adjustment mechanism is obviously better than others, which means the value adjustment mechanism has its incentive affects. Shareholders with the value adjustment prefer to work harder to enhance security after transaction. Second, double-side value adjustment mechanism is not better than the normal value adjustment mechanism. The performances of two kinds are almost the same. Third, the growth rate and incentive effect have an inverted U-shaped relationship. At the first stage, the incentive effect will be stronger with the growth rate, while it intends to be weaker after a certain point. Forth, when the company could not achieve the promised performance, agreed punishment will affect the result. The equity payment has a greater degree of incentive effects than the cash payment.Although the value adjustment mechanism is relatively popular in the modern society, especially in M&A transactions, academic researches on the value adjustment mechanism are rarely. Empirical evidence in this paper show the positive effect of value adjustment mechanisms. At the same time, this study leads more research about the meaningful topic in the society. The conclusions of the paper provide some inspiration and reference in the future.