Research On Financial Conflict In M&A Performance Commitment:perspective Of The Acquirer

With the rapid development of China’s market economy,Chinese enterprises’ M & A activities have become increasingly frequent.Since 2013,the number of mergers and acquisitions in China has increased year by year.More and more companies rely on mergers and acquisitions to achieve their goals of growth and transformation and upgrading,and to promote the optimal allocation of market resources.On the one hand,mergers and acquisitions can bring rapid development for enterprises,on the other hand,they can also trigger merger and acquisition risks.In order to reduce the merger and acquisition risks of the acquirer,the performance commitment system has been widely used.The performance commitment system is an innovative application of the CSRC on the basis of absorbing the core ideas of foreign gambling agreements and combining China’s unique market system.It was originally born of the split share structure reform.Later in May 2008,it was introduced into mergers and acquisitions in a legal form.The advantages of performance commitment are intuitive,including incentives and constraints,synergies,and protection of the interests of small and medium shareholders.Its disadvantages and harm are difficult to directly observe.Existing research shows that performance commitment will induce large shareholders’ earnings management motivations,cause short-sighted behavior of management,lead to merger and acquisition failures of acquirers,and delay the performance of acquirers after the performance commitment period,and affect the long-term development of acquirers.Performance commitments reduce the risk of mergers and acquisitions brought by the asymmetric information to the acquirer in the form of a contract,but this system also makes the acquirer and the acquiree’s management(original shareholders)have a conflict of interest.If the management of the acquiree(original shareholder)fails to realize the performance commitment,it will need to perform performance compensation to the acquirer,and the original shareholder will likely perform earnings manipulation in order to avoid compensation and generate opportunistic behavior to artificially increase performance,which will seriously affect The authenticity of the performance of the target company adversely affects the interests of the acquirer and forms a conflict of interest with the acquirer.This kind of conflict of interest is finally manifested as a financial conflict under the effect of M & A performance commitments,bringing serious consequences to the acquirer.This article first reviews the previous research results,summarizes the relevant literature,understands the current research status,and establishes the research questions of this article.Then,the principal-agent theory is used to theoretically analyze the generation and coordination of conflicts of interest,and pave the way for case analysis later.From the perspective of the acquirer,combining the case of Oriental Seiko’s acquisition of Pride to analyze financial conflicts.In the case analysis,describe the fulfillment of Pride ’s performance commitments and organize the events of the financial conflict between the acquirer and the acquiree around the performance commitments;focus on analyzing the conditions and causes of financial conflicts,and explore the mechanism of financial conflicts between the two parties.From the perspective of the acquirer,analyze the consequences of financial conflicts on Orient Seiko,and make targeted suggestions and countermeasures for Oriental Seiko to coordinate financial conflicts.The specific contents include: formulating reasonable performance commitment targets,using two-way performance incentives,using contingent deferred payments,establishing comprehensive performance evaluation indicators to optimize the design of performance commitment agreements,and maximizing the incentive and restraint effect of the performance commitment system;establishing internal supervision mechanisms,and strengthening financial control and overall management and control to reduce information asymmetry and prevent the opportunistic behavior of the acquiree;by adding precautionary clauses on important practical issues in the agreement,it supplements and improves the performance commitment agreement to make up for the loopholes and deficiencies in the agreement.