Research On The Performance Consequences Of Shinva's Application Of Valuation Adjustment Mechanism In Merge And Acquisition Transaction

Valuation Adjustment Mechanism(VAM)was firstly applied in private equity financing in western countries.With the development of mergers and acquisitions in China,VAM is more and more widely used.However,many listed enterprises took advantage of high performance commitment and high premium to promote their enterprise's stock price.As a result,after the VAM expire date,a number of enterprises failed to complete their performance commitment.Some of these failures even caused economic disputes.These failures not only caused the losses in investors and listed enterprises,but also made baneful influence of the capital market in China.In April 2014,Shinva planed to acquire BIO-YD.Because BIO-YD required high premium,Shinva decided to use VAM to protect their stockholders' benefit.However,BIO-YD failed to achieve commitment for four consecutive years.Besides,Shinva submitted cases to the court due to BIO-YD's default in debt.This article takes this case as the research object and adopts the method of combining case analysis,event study,financial indicators analysis and factor analysis to study the enterprise performance after the application of valuation adjustment mechanism in mergers and acquisitions transaction.Firstly,this article introduced the study background,the study purpose,the related theories and references.Then,this article explained some concepts and theories related to VAM in mergers and acquisitions transaction.Next,this article analyzed the performance of Shinva's application of valuation adjustment mechanism in mergers and acquisitions transaction by using event study,financial index analysis and factor analysis.Study found that short term wealth effect of Shinva's application of VAM in mergers and acquisitions transaction is not significant.However,cumulative abnormal return before Shinva announced the transaction is positive,which means the managers in Shinva may possibly disclose information beforehand to promote their share price.The failure to achieve commitment had negative impact on performance of Shinva.Since Shinva acquired BIO-YD in 2014,debt-paying ability,profitability and development ability in Shinva had declined evidently.Among these financial indexes,the failure to achieve commitment worsen theprofitability and development ability of Shinva significantly.The profitability and development ability of Shinva declined most rapidly in the year of 2016.Moreover,the failure to complete commitment may have lasting impact on Shinva's development ability.The reasons of the failure included the high-risk in target enterprise,the over-dependency on VAM and inadequate consideration of target enterprise's default risk.In the end,this article put forward three suggestions from target enterprise,responsible investigation and contractual capacity to the enterprises who is planning to use VAM in mergers and acquisitions transaction.