Research On The Risk And Countermeasure Of Performance Compensation Commitment

With the thriving development of China's capital market,the scale and quantity of mergers and acquisitions of listed companies are increasing dramatically.And in order to prevent valuation bubble,reduce the asymmetry of information and protect the interests of minority shareholders,performance compensation commitments are widely used in mergers and acquisitions.In recent years,high valuation and high-performance commitment have become a standard requirement for mergers and acquisitions.As a matter of fact,with the end of performance commitment period,many listed companies failed to achieve performance goal,resulting in a large amount of goodwill impairment,and then he corporate performance tends to change sharply and even triggered litigation.Since the breach of performance compensation commitment happened frequently,performance compensation commitment fails to prevent valuation risk.Meanwhile,it has its own risk.Therefore,the study of the hidden risk of performance compensation commitment has certain significance both in theory and in practice.This thesis uses case study method to analyze the case of Steyr's M&A,combining asymmetric information theory,real option theory,incomplete contract theory and COSO enterprise risk management framework.Firstly,the background of Steyr's M&A and its performance compensation commitment are introduced.Then,the hidden risks of performance compensation commitment signed by Steyr are identified.The risks of performance compensation commitment in Steyr's case include performance goal risk,high premium risk,control right risk,behavioral risk of controlling shareholders and litigation risk.Finally,specific suggestions to cope against these risks are proposed as follow.Firstly,performance goals should be rationally set with constant vigilance over the rationality of valuation.Secondly,preventing of high premium risk needs to improve method of asset evaluation and enhance supervision.Also,to prevent the risk of goodwill impairment brought by high premium,not only the profitability of the company should be improved,but also annual impairment test should be conducted.Thirdly,the risk of control right can be prevented by adopting dual compensations of cash and shares and signing agreements to maintain the stability of control right.Fourthly,regulators should heighten supervision and manage to ensure the corporate performance capabilities to restrict the behavior of controlling shareholders.Fifthly,the dispute settlement mechanism should be formulated in advance to avoid litigation risks.