Research On Acquired Company's Earnings Management Caused By Valuation Adjustment Mechanism

With the the development and continuous improvement of the capital market,the number of M&A transactions continues to grow.In the fierce competition,M&A has become the law of survival for many companies.Through mergers and acquisitions,companys can quickly integrate the resources of the enterprise,enhance the comprehensive strength of the enterprise,and realize the rapid growth of the enterprise.However,the shareholders and managers of the target company more clearly know the situation of their own company and have more information than the acquirer.Information asymmetry may bring risks to the acquiring company.Therefore,more and more companies choose to use Valuation Adjustment Mechanism.However,due to the incompleteness of the performance commitment system in mergers and acquisitions,there have also been many opportunistic behaviors.Mergers and acquisitions will choose to use earnings management to achieve performance.The article is based on the theory of signal transmission,incomplete contract,information asymmetry and incentive and combined with feature analysis of the Valuation Adjustment Mechanism.Thus the article analyzes how Valuation Adjustment Mechanism leads to acquired companies' earnings management.The article takes a series of mergers and acquisitions of Shenzhou high-speed railway company since 2015 as an example.using the method of case study and earnings management model,the paper analyzes the motivation,behavior and economic consequences of the earnings management of the three acquired companies.According to the research,the article has founded: firstly,huge performance pressure,the unfavorable and tacit control of Shenzhou high-speed railway company's management,and the lack of market supervision have resulted in the earnings management of the acquired companies.Secondly,in order to complete the performance,acquired companys have a high degree of earnings management.Thirdly,the three companies experienced different levels of performance decline after the end of the gambling period,but the performance of enterprises with high earnings management declined to a large extent,while the performance of enterprises with lighter earnings management declined slightly.The behavior of earnings management of the acquired companys has also caused the Shenzhou high-speed railway company to fall into the dilemma of developmental doubts,poor operation,and insufficient resources,which seriously infringes the interests of investors.This thesis proposes the following recommendations: Firstly,making valuation basis public to ensure fair transaction consideration.Secondly,guaranteeing information disclosure transparent and reducing asymmetry of information.Lastly,strengthening supervision of VAM to limit the means of earnings management.