Research On Performance Commitment And Earnings Management In Merger And Reorganization Of Wentuo Holding Company

The performance commitment system is a flexible supplement to the fair valuation of mergers and acquisitions.It plays an important role in providing the market with good expectations,supporting reasonable valuations,reducing information asymmetry among all parties,and safeguarding the interests of investors.Although the regulatory authorities have cancelled the mandatory requirement for performance commitments in M&A and restructuring,performance commitments have become a voluntary market choice for listed companies in M&A and restructuring.However,the good intentions of the policy may not work.When the target performance is difficult to achieve,in order to avoid performance compensation or avoid transmitting negative signals,listed companies will choose to use earnings management to beautify performance.In this situation,it is necessary to study the earnings management behavior of performance-commitment companies.This article takes Wentou Holdings as an example.By sorting out the number of performance commitments and actual profit of 2014-2017 performance of Yaolai Cinema and Duwan.com,a subsidiary of Wentou Holdings,both companies have accurately completed the performance commitment goals each year,and both have increased their performance in the year when the performance commitment ends It fell rapidly and the following year saw huge losses.This raises the skepticism that the two may carry out earnings management,analyzes their performance commitment and the motivation of earnings management,and uses the cross-section modified Jones model and the real earnings management model to measure their earnings management.Based on further financial analysis,we found that the subsidiary of Wentou Holdings adopted aggressive selling policies and advertising sales policies,adjusted asset impairment losses based on profit targets,and used virtual assets for earnings management.It also analyzes the economic consequences of earnings management using event research.The research results show that high performance commitment is the incentive for Wentou Holdings’ earnings management;earnings management reduces Wentou Holdings’ long-term operating ability and damages the long-term interests of small and medium shareholders and the company itself.Based on this example,the characteristics of performance commitment and earnings management in M&A and restructuring in the Chinese mediaindustry are analyzed.Finally,this article proposes some solutions to the earnings management phenomenon in China’s media industry performance commitment.