Research On The Acquisition Performance Of The Value Adjustment Mechanism In The M&A

In recent years,with the mergers & acquisitions(M&A)become increasingly active,the exchange form of M&A is making constant innovations.Value adjustment mechanism(VAM)as an innovative form of M&A contract is more widely adapted in M&A exchange.From One-way betting protocol of value adjustment mechanism that used in the asset injection process of listed companies to two-way value adjustment mechanism that used in a series of M&A as typified by the BlueFocus after 2011,the value adjustment mechanism has become an important contract arrangement that promote the completion of M&A and reorganizations of listed companies.According to an uncompleted statistics,the number of M&A exchanges with performance compensation commitments happened in Growth Enterprise Market & SME board have increased from 23 cases in 2012 to 189 cases in 2014.In 2016,The China Securities Regulatory Commission revised the "management measures for the reorganization of major assets of the listed companies",which stipulate that when the methods based on future earnings expectation such as present earning value method & hypothetical development method are used to assess the assets to be purchased as a reference for pricing,the listed companies should disclose separately the difference between the actual profit and the profit forecast of the related assets in annual reports of three years after the completion of major assets reorganization,and the counterpart company and the listed company should sign a clear and feasible compensation agreement on the fact of the actual profit of the related assets is less than the forecast of the profit.Theoretically,the introduction of value adjustment mechanism in exchanges of M&A and reorganization can guarantee the fair trading rights and interests of both parties in M&A,and can play an important role in alleviating the distortion of the transaction pricing,reducing the information asymmetry between the two parties and protecting the interests of the small and medium shareholders of the M&A parties,but in practice,the “high performance commitment and overvaluation premium” become a widespread phenomenon and the existed researches do not make a reasonable explanation of the problem of "whether and how does value adjustment mechanism affect M&A performance”.My article exploiting the data of M&A of companies in Growth Enterprise Market & SME board from 2012 to 2014 to research empirically the value adjustment mechanism & Performance of M&A.In view of signal theory & motivation theory,based on classifying the clauses of performance compensation commitment,I separately investigated the relations between different clauses of value adjustment mechanism and short term performance of M&A,and between long term Performance of M&A.By theoretical analysis and relevant test,some conclusions could be made.First,adding performance compensation commitments to M&A can produce positive signal effect,promote the short term performance of M&A,and enhance long term performance of M&A by motivating both sides of M&A in long span of time.Second,mutual commitments cannot produce notable signal effect,and have little influence on short term performance of M&A,but it promote long term performance of M&A by inducing a remarkable motivation.Third,the extend of value adjustment mechanism has a positive correlation with the short term performance of M&A,but has a reverse U shape correlation with long term performance of M&A.This shows that when the ratio of commitment performance to historical performance exceeded a certain reasonable interval,it only can boost stock price in a short period,and cannot really promote the integrated performance after the M&A.Fourth,when performance do not reach the commitment value,the agreed compensation method will affect the long term performance of M&A,namely,that stock-based compensation have more positive effects on both sides of M&A and better long term performance of M&A than cash compensation.Besides,with regard to the phenomenon of “high performance commitment and overvaluation premium” in the capital market of recent years,my article try to give a hypothesis and verification.My conclusion is the extend of performance commitment has little correlation with profit ability before restructure of the underlying assets,but has a notable positive correlation with the value premium level of the underlying assets.Although performance compensation commitments are relatively common in M&A and reorganization of enterprises in our country,the academic researches on this topic are rare.After all,the empirical research in my article supports the value of agreement in performance compensation commitment and its influence on performance of M&A.