Untrusted Performance Commitments

With the development of economy and capital market,mergers and acquisitions take much more important position in the expansion of enterprises.However,there are so many potential risks which may cause mergers and acquisitions fail frequently while bring the enterprises rapid development,due to the large scale,long duration and other characteristics.And it comes up with a large number of mergers and acquisitions without the purpose of long-term development of the company,but chasing after the market investment hot spots or cross-border operating.Therefore,in order to protect the interests of investors,here comes the performance commitment mechanism to prevent and control effectively the possible risks of mergers and acquisitions.China's performance commitment compensation system began in 2005 with the split share structure reform.Subsequently,with the economic development,mergers and acquisitions usher in a boom.Performance pledges have a huge advantage in restraining high overwriting premiums and controlling business risks,so the use of performance commitments is becoming increasingly widespread.But at the same time,defaults in performance commitments have also occurred frequently.Moreover,due to the impact of mergers and acquisitions and performance commitments on the market value of listed companies,mergers and acquisitions market value management,performance commitment to market value management have emerged,but also led to a large number of performance commitments which cannot be honored,so the performance commitment needs correct guide and regulation.After the study of performance commitment and market value management theory,on the basis of the development of China M & A and performance-related policies,this thesis chooses the acquisition of Wanji Energy by Jiaozuo Wanfang as the study case,analyzes the problems in each stage of this case,and discusses the rationality of the performance goal and the performance commitment agreement,with the beginning of valuation and pricing,in the combination with M & A trends and market conditions,in the method of case study and literature analysis.At the same time,it analyzes the processing and default costs of the previous cases of default performance in the M & A market and explores not only the control on the listed enterprises and the original shareholders of the underlying assets of motivations of performance defaults,performance pledge,and the compensation agreement,but also the disadvantages of the performance commitmentmechanism.Finally,according to the case study,it comes up with the conclusion that both the two sides of the merger have the tendency to realize the high performance target for their own interests.However,due to the imperfection of the specific performance system,the imperfect disclosure of information and the lack of default commitment,the lack of supervision and low default costs lead to the result that the two sides can put high performance commitments into action and performance commitment mechanism fails.So the performance commitments lack credibility and performance commitments defaults occur frequently.Therefore,the listed enterprises should choose the right asset for M&A,make reasonable performance commitment and realize the commitment as far as possible.Meanwhile,CSRC should pay more attention on the supervision of the realization of performance commitment and information exposure,and increase the intensity of punishment.According to this case study,the thesis hopes that it could provide some suggestions for other listed enterprises which would price the underlying asset on the basis of performance commitment and use compensation agreement as a constraint to the original shareholders.