Research On Performance Commitment Compensation In The Process Of Merger And Acquisition Of Listed Companies

With the increasingly fierce market competition and deepening of economic globalization,more and more enterprises adopt the form of mergers and acquisitions to achieve the strategic objectives of enterprises.The size of mergers and acquisitions of a-share listed companies in China increased rapidly from 3,088 in 2013 to 7,950 in 2017 with transaction amount of 753.5 billion yuan and 1,778.2 billion yuan,among which the peak was 8,219 and 2,475.2 billion yuan in 2016.To avoid the risks caused by merger and acquisition,enterprises begin to introduce the VAM agreement,whose economic essence is the option with the future earnings of the enterprise as the subject matter.Then,through foreign venture capital institutions,the betting agreement was gradually introduced from abroad to China.In 2008,performance commitment compensation agreement was formally proposed as an important institutional arrangement,and many enterprises have applied it to merger and acquisition activities and successfully protected their own interests.This paper is based on the information asymmetry theory,real option theory,signaling theory and incentive theory as the theoretical basis.In addition,this paper selects the performance commitment agreement between D company and S company.This paper mainly analyzes the motivation of D company uses performance commitment agreement,problems existing in the process of performance commitment and the impact on development of D company,to find solutions to cope with risks during the process of performance commitment agreement.This case study shows that performance commitment compensation was adopted for the purpose of making up for information asymmetry,adjusting enterprise valuation,protecting the interests of minority shareholders and motivating the management.During the process of performance promised compensation,there maybe generate many problems,such as,a high evaluation of the underlying asset,the goals of the enterprise performance was set too high,performance promises failure have a higher risk of problems including the cause of the failure might be the management of the blind expansion,mark their own core competitiveness is not strong,the instability of the policy environment,a lot of goodwill and so on.In addition,the adoption of performance commitment agreement will bring a lot of impacts on the company.On the one hand,due to information asymmetry,before the performance of the target enterprise is not up to the standard,major shareholders may sell their shares for cash to avoid damage to their own interests and occupy the interests of small and medium-sized shareholders.On the other hand,for small and medium-sized shareholders,high performance commitment provides a layer of "protection barrier"for high premium acquisition at the initial stage of acquisition,and conveys good information to create a good financial situation.However,with the performance was not up to standard over many years,the quality of the target company was clear.What’s more,large amount of goodwill due to mergers and acquisitions would the risk of goodwill impairments,the corresponding impairment directly recorded into the profits and losses of the current.Then,the corresponding loss would reduce the company’s profits directly and affect the company’s performance led to the decrease of the company’s share price.Finally,the interests of minority shareholders would be decrease.This paper finds that,in the process of merger and acquisition,the adoption of performance commitment compensation agreement is often unable to achieve the desired effect,which also deviates from the motivation of the adoption of VAM agreement to a certain extent,and will lead to the specific risk of performance commitment compensation agreement and damage to the interests of shareholders.In view of the above problems,this paper puts forward some improvement suggestions,hoping to prevent the risk of merger and acquisition to the greatest extent,solve the problems caused by listed companies when using performance commitment compensation agreement,protect the interests of both sides of merger and acquisition,and ensure the healthy development of the capital market.