Performance Compensation Commitment And Interests Protection Of Minority Shareholders In Mergers And Acquisitions

In recent years,independent innovation growth of listed companies is weak.More and more companies use mergers and acquisitions what is an epitaxial development model for reference.Especially since 2013,mergers and acquisitions of emerging industries are very frequent.In these mergers and acquisitions,most listed companies follow the market principle and make performance compensation commitment,which shows the characteristics of high premium and high performance commitment.Performance compensation commitment system started lately in our country.With the rapid development of mergers and acquisitions and in order to prevent and control risk,fully protect the interests of minority shareholders,performance compensation commitment as an institutional arrangement is proposed in 2008.As an important choice in mergers and acquisitions of listed companies,performance compensation commitment has been developing rapidly.However,more and more listed companies regret that the target company cannot fulfill their performance commitments and try to change the commitments.It has seriously damaged the interests of minority shareholders.Therefore,it is a very important job to study the performance compensation commitment and interests protection of minority shareholders in mergers and acquisitions.On the basis of institutional analysis and literature review,this study found that the performance compensation commitment can transfer positive signal to the market,exchange for high premium,restrict and incentive the merged party and its managements,avoid the transaction price distortions in a certain extent,prevent serious moral hazard and adverse selection,then protect the interests of minority shareholders.However,performance compensation commitment may not achieve the desired effect on the interests protection of minority shareholders in practice because of inaccurate valuation,time risk and tunneling by the major shareholder.The author confirms the above viewpoint through the case analysis of Ourpalm.The performance compensation commitments in Ourpalm’s mergers and acquisitions as the research object,this paper researches the influence to the company’s operational efficiency,market reaction,and the constraints of large shareholders caused by the performance compensation commitments and probes into the protection effect on the interests of minority shareholders.Firstly,based on the financial indicators,such as the EPS,net asset per share and ROE of Ourpalm and technology industry from 2012 to 2016,we analyze the impact of performance compensation commitments on the company’s financial position and operating performance.Secondly,the event study method was used to collect and calculate the stock price and return of the performance compensation commitment related events,and analyze the market reaction caused by signature of performance compensation commitment,adjustment of compensation methods and implementation of compensation scheme.Finally,through the calculation of the previous transaction premium rate,the target enterprise shareholder changes and cost return rate,and combing Ourpalm’s major shareholders holdings and the previous profit condition as of December 31,2016,we compares and analyzes the constraint of different performance compensation commitments on major shareholders.The findings are as follows:first,the performance compensation commitment can inspire and restrain the counterparty management to work hard to complete the performance commitments.It can improve the performance of listed companies to bring benefits to minority shareholders in the short term to a certain extent.However,it cannot effectively improve the profitability of listed companies,and protect the long-term interests of minority shareholders.Second,signature of performance compensation commitment bring excess returns for minority shareholders.However,adjustment of compensation methods caused negative market reaction.Besides,if the target company fails to fulfill its commitments,the market is also disappointed,which is not conducive to the protection of the interests of minority shareholders.Finally,the high premium brought by the high performance compensation commitment stimulates the "tunneling" behavior of major shareholders.The two sides signed high performance commitment which is difficult to achieve to get high returns,shift the losses caused by performance and share prices decline on to the minority shareholders.The performance compensation commitment is reduced to the means of infringing the interests of minority shareholders.In view of the conclusions drawn from the case study,this paper puts forward some suggestions on how to improve the performance compensation commitment and protect the interests of minority shareholders such as strengthening performance compensation commitment system,building diversified transaction pricing,improving information disclosure and regulatory environment,rational investment of minority shareholders.In this paper,the status quo of performance compensation commitment and interests protection of minority shareholders in mergers and acquisitions for research perspective,enrich the theoretical research of performance compensation commitment and interests protection of minority shareholders;on the basis of case studies,we proposed to perfect the system of the performance compensation commitment that increase the practical significance of mergers and acquisitions and interests protection of minority shareholders.