Research On Performance Commitment And Earnings Management In Mergers And Acquisitions

The system of the performance commitment in China was first proposed to protect the interests of non-tradable shareholders in the period of the reform of the shareholder structure of listed companies.After the equity division reform,performance commitments are developed and make wider applications in merger and acquisition.In recent years,with the increasingly fierce market competition,more mergers and acquisitions occur in Chinese capital market,the performance commitment is more and more widely used at the same time.However,some problem appears during its operation,such as the opportunism behavior of the committed party.For the past few years,in order to avoid compensation,the committed party uses earnings management to beautify the operating performance of the target company,which cause an amount of accurate achievements of performance commitments.But in the meanwhile,these precise realization of performance commitments is accompanied by the sharp decline in business immediately when the commitment period ends,which has caused serious damage to the interests of the majority of public investors.Therefore,it is of great significance to study the influence mechanism of performance commitment on earnings management behavior for improving the performance commitment system and protecting the interests of minority investors.In order to study the deep relationship between performance commitment and earnings management,this dissertation first reviews relevant literatures and theories,the background and development of the performance commitment is also introduced.Then this dissertation compiles statistics of the application of performance commitments in merger and acquisition,and analyzes each year’s achievement rate from 2015 to 2017.Finally,taking Sino Great Wall as an example,this dissertation analyzes the performance of the company from 2015 to 2017,conducts an in-depth study on the earnings management behavior of the company during this period,discusses the causes and economic consequences of the earnings management behavior,and puts forward relevant suggestions on this basis.Based on the above research,this dissertation have founded: firstly,from 2015 to 2017,the proportion of performance commitments in mergers and acquisitions increased from 15.93% to 33.25%,the application of performance commitments in increased year by year.But the average completion rate of performance commitments decreased year by year,and the incomplete proportion of performance commitments increased from 18.91% in 2015 to 32.71% in 2017,which means the risk of unfulfilled commitments increased.At the same time,the proportion of accurate achievements of performance commitments is relatively high,which may indicate that there are more enterprises that implement earnings management to avoid performance compensation.Secondly,according to the study of Sino Great Wall,in order to reduce the pressure of substantial shareholders’ performance compensation,the company used some means of earnings management to increase profit to up to the commitment,such as the intertemporal adjustment of income,reducing the provision of bad-debt.But surplus management means cannot solve the management and financial problems of the enterprise fundamentally,its operating condition continued to rapidly deteriorate after the performance commitment period,and the company was forced to delist eventually.Thirdly,the current system of performance commitment plays a limited role in restricting the behavior of the promising party and protecting the interests of public shareholders.In the future,the government should further improve the performance commitment system and prevent the earnings management behavior effectively in order to truly protect the interests of the minority shareholders.