The Risk Research Of The Listed Company's Private Placement Profit Compensation Agreement

With China's non-tradable share reform,more and more listed companies begin to raise funds through private placement to seek strategic development.Among them,the pricing of target assets for private placement has been the focus of all parties in market.To safeguard the interests of investors,curb unreasonable pricing,and promote the healthy development of multi-levels capital markets in China,the Measures for the Administration of Significant Asset Restructurings of Listed Companies was promulgated by China Securities Regulatory Commission(CSRC)in2008.In which,Article 17 stipulates that a listed company shall prepare a profit forecast report before conducting significant asset restructuring or purchasing assets by issuing shares.Article 33 also provides that the listed company shall separately disclose the discrepancy between actual profit and expected profit of related assets in the annual report within three years after the completion of significant asset restructuring,then the accounting firm issues specific auditing opinion on the discrepancy.Later,trading counterpart are supposed to sign a clear and feasible compensation agreement with the listed company concerning the insufficiency of actual profit compared with expected profit of related assets.Consequently,for listed companies the earnings compensation commitment has been playing an indelible role in lowering the risk from private placement and significant asset restructuring,and reducing the losses resulted from asymmetry of information and overvaluation of target assets during the process of share purchase.To improve the marketization degree and enable the full play of trading parties,Article 22 of amended Measures for the Administration of Significant Asset Restructurings of Listed Companies in 2015 stipulates that a listed company may disclose a profit forecast report voluntarily.The rigid requirement to disclose the profit forecast report as provided in the 2008 version is abolished.In the new Measures,Article 35 still clearly stipulates that the listed company shall disclose the discrepancy separately between actual profit and expected profit of related assets in the annual report within three years after the completion of significant asset restructuring if the present earning value method,hypothetical development method and whatever based on expected future earnings are used to evaluate or estimate theassets to be purchased as a reference for pricing.The accounting firm shall issue their special auditing opinions on the discrepancy,trading counterpart shall sign a clear and feasible compensation agreement with listed company concerning the insufficiency of actual profit compared with expected profit of related assets.Subsequently,as an approach with higher marketization degree,the earnings compensation commitment has played a balanced role continuously in private placement as well as merger and acquisition(M&A).Based on the data of 2,463 private placements between January 1,2007 and December 31,2015,we found that there were about 189 unfulfilled earnings commitments,accounting for 22.9% of the 825 private placements bound by the earnings compensation clause.Part of the target commitment not only failed to reach the earnings forecasts,but also failed to make an earning compensation,having an impact on the quality of the overall assets of listed companies.In this paper,we used the methods of whole descriptive statistical analysis and specific blue cursor case analysis to summarize the causes of non-qualification of earnings compensation commitment from private placement issuance discount,future earnings forecast methods,target assets valuation,and repayment sources of compensation objects.Meanwhile,we have also summarized various risks of the earnings compensation commitment for private placement to reduce the non-systematic risk caused by the non-qualification of earnings compensation commitment as far as possible.