Research On Performance Commitment And The Protection Of Small And Medium Shareholders' Interests

Performance commitment is a value adjustment mechanism set by the CSRC to reduce investment risks in listed companies' mergers and acquisitions and protect investors and social public interests.With the increase in the number of mergers and acquisitions,the application of performance commitments has become more and more extensive,however,the problem of obtaining investment with a false high performance commitment but failing to achieve the expected performance has become more serious.In practice.does performance commitment protect the interests of minority shareholders?This article takes a series of mergers and acquisitions of Smarter Energy as an example to study this issue.This paper firstly combs relevant literatures and theories at home and abroad,expounds the current status of China's relevant laws and performance commitments in the capital market,and then takes the series mergers and acquisitions of Far East Smarter Energy Co.,Ltd.as an example.in order to study the protection effect of performance commitment on the interests of minority shareholders from third phase,the first,middle and last part of the scheduled time for performance commitments respectively.The target companies in the case,Shuimuyuanhua.Far East Foster New Energy and Yineng Electric respectively represent the three cases of performance commitments.Firstly,for the study of each point of performance commitment,this paper analyzes the market reaction of events such as signing performance commitments and declaring commitments from the perspective of the stock price trend and the change of cumulative excess return rate.Secondly,during the performance commitment period,based on the performance completion,the financial status of the three companies is studied.and the comparison before and after the merger is conducted to analyze whether the performance commitment during the period strengthens the synergy of the merger through signal and incentive.which protects the interests of small and medium shareholders.Thirdly,after the performance commitment period,this paper traces the financial status of the three companies that have been acquired.analyzes the reasons for the decline in performance from the aspects of actual profitability and valuation premium rate,and proposes potential risks such as the impairment of goodwill.And then,the financial indicators of Far East Smarter Energy Co..Ltd.before and after the performance commitment are compared to evaluate the effects of performance com:mitment on company management,the same as the industry average level.At the same time.according to the division of Far East Smarter Energy Co.,Ltd.,it analyzes the impacts of the three companies that have been acquired by the respective sectors on the performance of Smarter Energy,and analyzes the protection of the performance commitment to the interests of the small shareholders of the acquirer.Finally.the three cases are compared so as to make relevant recommendations.The conclusions drawn in this paper are as follows.When the performance commitment is announced,the share price and excess return of Smarter Energy will increase,indicating that the performance commitment has delivered a positive signal to the market.When the performance commitment is not up to standard,the interests of small and medium shareholders will be negatively affected.During the performance commitment period,the acquired companies are in good operating condition,and the profits of the acquirer increase,indicating that the performance commitments have promoted the management of the target companies to improve the performance.To a certain extent,it is beneficial to the protection of the interests of the minority shareholders in Smarter Energy.and especially two-way performance commitments are more effective than unidirectional ones.Performance commitments have a certain binding effect on the M&A premium,but they cannot eliminate the risk of overvaluation.In the latter stage,the over-recognized target company experiences a decline in performance,and the phenomenon of significant impairment of goodwill seriously damages the interests of the acquiring party.It indicates that in the high-premium acquisition,the target company's own profitability is insufficient.This paper proposes the following recommendations through research and analysis.On the one hand,the acquirer should focus on the actual profitability of the target company,reasonably determine the evaluation value of the underlying assets,extend the performance inspection period,and improve the performance commitment clause.On the other hand,the small and medium shareholders should treat the performance commitment rationally and avoid blind follow-up behavior.They need to make investment analysis more comprehensively and carefully,and reduce investment risks.At the same time,it is also hoped that the regulatory authorities can establish a guarantee system for performance commitments to pay compensation,increase the intensity of continuous supervision,and protect the interests of small and medium shareholders.