Research On The Effect That Performance Compensation System Circumvents The Risk Of M&A Based On The Case That KEBDT Merges And Acquires SURTEC TECHNOLOG

With the gradual improvement of capital markets and equity restructuring of state-owned enterprises,the number and the scale of mergers and acquisitions(M&A)in recent years continue to increase,"mergers and acquisitions boom has not receded.Even in the past two years,premium M&A has gradually become accepted,performance compensation system aims to control the frothy valuations and reduce the premium risk brought to the acquirer.However,the sequela of M&A also began to emerge,the number of non-compliance with performance commitment is increasing,and performance compensation system is designed to circumvent the risk of M&A but also derived a new risk.In actual business,whether performance compensation system can circumvent the risk of M&A and how the risk derived from the performance compensation system can be controlled is still worthy of research.On the base of related literature reviews of performance compensation system and M&A risks,we found there is lack of papers concerning performance compensation system as well as M&A risks,this paper selects performance commitment as an instrument to study M&A risks,which is also an innovation on research content.Based on the theories of M&A Motivation,Asymmetric Information,Uncertainty,Goal setting,path and mechanism of the performance commitments on M&A risks,performance commitments' circumvent concerning the risk of M&A and the risks derived from performance commitments itself are analyzed so as to provide corresponding preventive measures and research for M&A deals and research.Then,the paper combs the M&A process and possible risks between Kee Ever Bright Decorative Technology Co.,Ltd.(KEBDT)and SURTEC TECHNOLOG(SUZHOU)CO.,LTD(STC),from the deal preparation stage,the M&A transaction phase,integration phase through the case study method,qualitative and quantitative analysis methods.Furthermore,contents contains the performance's accomplishment and the game process between two sides and we study short-term market reaction to M&A in the event study method and long-term financial performance of M&A by profitability,solvency,operating capacity and find that changes of market environment results into non-compliance with performance commitment,the performance compensation can't be cashed either,acquirer's financial performance is affected in the integration phase.M&A aims to achieve synergies,to seek new profit growth point,but the results are not ideal in the perspective of the effects of M&A,even if both sides.reach agreement on performance compensation but they can't avoid the risk of M&A essentially,and then the causes of poor avoidance effect that performance commitment has on M&A are analyzed.Finally,according to the above analysis,we conclude that the performance compensation commitment can control risks to some extent as a unreliable hedging mechanism,but market volatility will affect the accomplishments of performance compensation commitment,KEBDT and STC achieve performance compensation bychanging the compensation scheme in the case.In 2016 June,changing the performance compensation plan was also banned by China Securities Regulatory Commission(CSRC),so the acquirer can't take performance compensation system as a fallback,they should focus on the preparation stage,trading scheme and integration of M&A:vigilance against the vulnerabilities of performance compensation commitment protocol,control premium,broaden the channels of M&A information,design reasonable payment,improve M&A integration work.