Can Performance Commitment Protect The Interests Of Minority Shareholders? ——A Case Study Of JC’s Acquisition Of Fangxin Technology

With the increasing market competition,m＆a,as an effective shortcut to optimize resource allocation and improve their competitiveness,has won the "preference" of listed companies,but at the same time,it has also evolved into a "black hole" where major shareholders take advantage of information asymmetry to seek personal gains.Based on this,the performance commitment compensation system was included for the first time in the Management Measures for Material Assets Reorganization of Listed Companies in 2008.The original intention of the policy is to curb the motivation of the asset transferor who is in the information advantage to "cheat" the market by promising the future earnings of the underlying assets and agreeing on compensation for loss of promise,so as to protect the interests of the majority of small and medium investors.What has backfired,however,is that the widespread use of performance commitments has unlocked a new way for large shareholders to channel profits to themselves by making high commitments and extracting high valuations.The original protection mechanism has been distorted into a new opportunity for opportunists to make profits by pushing up the valuation of "inferior assets"and cajoling minority shareholders into investing to boost stock prices,causing chaos in the restructuring market.In this context,is performance commitment a "protective umbrella" or a "sugar-coated shell" for minority shareholders?This paper takes Jincai’s acquisition of Fangxin as an example,and uses the single case study method to deeply analyze the motivation of major shareholders’ behavior in each stage of performance commitment and its influence mechanism on the interests of minority shareholders,in order to provide reference for the improvement of performance commitment system and the optimization of minority shareholders’ guarantee mechanism.In the order of"pre-event,in-event and post-event",the case analyzes the related party transactions of Fangxin Technology before restructuring with the motivation of raising the valuation,and the "crazy merger and acquisition" behavior behind the "accurate target" during the commitment period.This paper focuses on the motivation of major shareholders’ pledge and"oral" behavior of increasing their holdings,as well as reducing their holdings to leave the market after the expiration of commitment.And analyze the impact of these actions on the interests of minority shareholders.In order to further quantify the degree of erosion of major shareholders’ interests by these behaviors,the author analyzes the long-term interpretation of financial statements and stock prices and the short-term calculation of stock cumulative excess return（CAR）in the window period.The results show that:（1）In the short term,high performance commitment plays a role in improving the financial condition of listed companies and increasing stock prices.,but in the long run,the prosperity does not last and cannot protect the interests of minority shareholders.This is because the high performance commitment is made by the major shareholders of both sides of the transaction for their own interests,which not only drives up the stock price of the listed company but also brings high valuation benefits to the major shareholders of the seller,rather than corresponding to the equivalent quality assets.Therefore,in order to avoid minority shareholders falling into the trap of "high commitment",it is necessary to strengthen the supervision and review of equity transfer behavior that increases the valuation before commitment.（2）During the commitment period,in order to achieve the target performance,the major shareholders adopt the strategy of "crazy acquisition" to contribute profits to the consolidated statement,so as to put a FIG leaf on the"accurate standard" and let the small and medium shareholders with insufficient professional ability bear the risk of sudden explosion at any time due to poor management.A large proportion of stock pledge by major shareholders during the commitment period will bring bad mood to the market.At this moment,listed companies adopt the "signal" to increase their holdings in an attempt to manipulate the stock price and alleviate the losses caused by the slump.The release of this deceptive information does secondary harm to the interests of small shareholders,so it is suggested to increase the punishment of "oral" increase in holding;（3）It is a direct way for major shareholders to reduce their holdings and cash out after the expiration of commitment to infringe the interests of minority shareholders.The profit gained by reducing holdings is far higher than the cost of losing promises,which is also the fundamental purpose of the major shareholders signing the inflated promises.The major shareholders of Jincai Internet also have the motivation to use the information to cover up the reduction of holdings,so that the major shareholders to maximize the return after leaving,aggravating the degree of damage to the interests of minority shareholders.In addition,after the commitment period,there is also the suspicion of financial statements "bath",washing away the paper boom caused by inflated promises,so that a new round of share price boom.Therefore,it is necessary to strengthen the strong supervision on the behavior of reducing holdings after the commitment period and the provision of impairment provisions of some accounting items to prevent the interests of minority shareholders from being damaged again.The case has a certain particularity and innovation.First of all,the case particularly reveals that during the period of performance commitment,the major shareholders,facing the situation of stock price collapse caused by their pledge of all stocks,cheat and comfort themselves by increasing their holdings in order to stabilize the stock price.After the commitment expires,they announce to stop increasing their holdings and leave the market by reducing their holdings in a crazy way,which is a series of evil acts that infringe the interests of minority shareholders.It enriches the self-interested behaviors of major shareholders in performance commitment and provides guidance for the improvement of performance commitment system and the protection of interests of minority shareholders in asset restructuring.Secondly,it has some innovation in the research method.This paper clarifies the major shareholders’ self-interest channels in the whole stage before,during and after the commitment signing from a more macroscopic perspective.In order to quantify the degree of infringement on the interests of minority shareholders by the behavior of major shareholders,the short-term market reaction was measured by innovative timing selection,namely,the time when the increase announcement was issued,the performance failure time and the time when major shareholders reduced their holdings,instead of the traditional CAR before and after the signing,completion and uncompletion of performance commitment.Therefore,the conclusions and suggestions drawn from this case study provide help for the improvement of the performance commitment system and the optimization of the regulatory environment,and wish they can better serve the original intention of protecting the interests of minority shareholders.