Study On The Impact Of Profit Compensation Agreement On Private Placement Discount Rate

In recent years,the case of Private Placement which is used for the Mergers and Acquisition(M&A)activity become more and more popular.As one of the most important measures to protect the interests of small and medium investors,the profit compensation agreement which appear in the M&A is also deserved attention.Some scholars think that the profit compensation agreement can not only avoid the risk linked to overestimating the value,but also improve the synergies of M&A.However,we have found some drawbacks of the profit agreement in implementation processes,especially the compulsory compensation has put a lot of pressure on the shareholders of target enterprise.We all know that,the stock pricing in Private Placement is actually a game between the issuer and the subscriber,so the existing mechanism is likely to force shareholders to chase a higher discount in asset transactions,for the sake of overlaying the risk brought by profit compensation.To prove the above assumes,this paper uses the listed companies which has implemented the private placement during 2013 to 2016 as a sample,to study the impact of profit compensation agreement on the private placement discount rate by using theoretical analysis and empirical methods.The empirical results show that,the implementation of performance compensation will significantly increase the discount rate of private placement.Further study finds that,the higher the amout of compensation commitments,the higher discount rate of private placement.When the target business cannot implement promised profits,the heavier the degree of punishment,the higher the discount rate is.When the buyer ask for a higher compensation commitment degree,the performance incentives can effectively motivate the shareholders to chase a additional bonus,and ultimately reduce the discount rate of private placement.As the discount rate is used to measure the degree of minority shareholders' right violated,the negative impact of profit compensation agreement on the private placement discount rate cannot be ignored.Although it can,to some extent,avoid the uncertainty brought by the valuation method based on future earnings.Finally,the article provides some short-term advices to perfect the profit compensation agreement.And we should improve our asset pricing methods and seek other non-performance agreement to replace the profit compensation agreement in the long run.