Motivation And Economic Consequences Of Performance Commitment In Backdoor Listing

As the second option for landing on the capital market in addition to IPO,backdoor listing has become an important way for companies to go public due to its low capital cost and low time cost.In merger and acquisition transactions,in order to reduce the information asymmetry between the two parties and the problem of false valuations and benefit loss of minority shareholders caused by it,China has introduced the Performance Commitment Mechanism.However,with its implantation,a number of listed companies have failed to meet the standards of performance commitments,and the performance commited parties even took various measures to reduce or disguise their performance compensation obligations,causing huge losses to the interests of minority shareholders.Existing literature mostly focuses on the discussion of the influencing factors and economic consequences of performance commitments in ordinary M&A transactions,while only a few looks into the performance commitments in the context of backdoor listing.From the perspective of protecting minority shareholders,this article studies the performance commitments in the context of backdoor listings.What are the motivations and economic consequences of performance commitments in backdoor listings?Do the performance commitments in the backdoor listing achieve the expected effect of protecting the interests of minority shareholders?How to strengthen the protection of the interests of minority shareholders who are committed to backdoor listing performance?This article selects the case where Zangge Holdings backdoor listing allowed high performance commitments,but the continuous performances did not meet the standards.It analyzes the motivations of the performance commitments during the backdoor listing,as well as the consequences of shareholder interests.In this case,the backdoor party proposed a high amount of performance commitments in order to successfully take the backdoor listing.Subsequently,the continuous failure of its performance commitment led to financial frauds,and the compensation obligor used the pledge of equity as an excuse to delay the compensation obligation,resulting in complete damage to the interests of minority shareholders.This article draws the following conclusions.First,the motivation for signing high performance commitments in backdoor listings is not simply to use performance commitments as a way to protect the interests of minority shareholders,but to promote smooth backdoors and improve the valuation of the underlying asset through high performance commitments.Second,the high performance commitments agreement signed by the backdoor party does not generate the expected positive effect of protecting the interests of minority shareholders.Third,backdoor listings of major shareholders use performance commitments as a tool for short-selling.Last,the high performance commitments lead to execution risk of performance compensation.The compensation obligor then delays the implementation of compensation,resulting in the loss of the interests of minority shareholdersThe theoretical significance of this article is that current research about performance commitments mainly focuses on the motivation,economic consequences and protection of minority shareholders in the context of ordinary M&A transactions,while few research looks into performance commitments in the context of backdoor transactions.This article hopes to enrich relevant research by utilizing the case of Zangge Holdings.In terms of practice,this article helps minority shareholders identify the risk points of performance commitments in backdoor listings,and hopefully can provide some references for minority shareholders in the face of performance commitments in backdoor listings.