Research On The Risk Of Enterprise Performance Commitment

As China is transforming into a technical economy,more and more enterprises are showing interest in M&A.The M&A transaction volume of listed companies increased rapidly from 1,015 in 2013 to 3,016 in 2017.With the rise of merger and acquisition wave,merger and acquisition risk also arises at the historic moment.In M&A,the key is M&A premium risk.In order to solve this problem,China Securities Regulatory Commission has introduced performance commitment system.As a means to motivate the management of the acquired company and correct the high premium M&A rate,performance commitment has been adopted by the majority of listed companies.However,performance commitment not only has its advantages,but also has its disadvantages.In recent years,there have been many cases of performance explosion in the capital market.Performance commitment is not up to standard,also marks the failure of performance commitment.The economic consequences of failure include performance loss,inter-enterprise litigation,etc.Therefore,performance commitment also brings certain risks to M&A activities.In order to deal with the risk effectively and solve this practical problem,we must first identify the risk of performance commitment in the process of M&A.This paper is based on real option theory,information asymmetry theory and risk management framework.Through the analysis of the M&A cases of changyuan group and eagle technology,it is found that the application of performance commitment may cause greater risks to the acquiring party,not only failing to solve the general M&A risks,but even causing its own risks.Performance commitment runs through the whole process of M & A.the impact of performance commitment is accompanied by M & a risk.Therefore,according to the process of performance commitment in the case,this paper studies the risks in the process of M & A,so that enterprises can understand that performance commitment is not only beneficial,but also has its disadvantages.When dealing with the risk of performance commitment,we need to start from the whole process of M & A and put forward countermeasures in a practical way.The case study of Changyuan group found that before M & A,enterprises choose the target assets based on the current strategy.However,due to the existence of performance commitment,the future environment changes of the target assets are ignored,which has a negative impact on the strategy of the acquirer.In the process of M & A,the high performance commitment will produce overvalued premium,which makes the acquirer overconfident in the profitability of the target enterprise,and makes the performance commitment target set too high.After the completion of M & A,the target enterprise may fail to achieve the performance target,thus bringing risks,including litigation risk,financial distress risk brought by failure of performance commitment to the acquirer,and impairment risk of high goodwill caused by overvalued value in the future,which have adverse effects on the long-term development of the enterprise.This paper reveals the relevant risks of signing performance commitment in capital market,and provides suggestions for the acquirers how to deal with the risks,which has reference significance for enterprises to use performance commitment for successful M & A.