Analysis On The Motivation And Effect Of Performance Compensation Commitment Of Merger And Acquisition In L Company

With the rapidly development of the market economy in China,the number of mergers and acquisitions in the capital market has increased day by day.With the arrival of the wave of M&A and the launch of the "Measures for the Administration of Major Assets Reorganization of Listed Companies",performance compensation commitment has been widely used in the capital market.The original purpose of it is to reduce the information asymmetry in the M&A process,so as to stimulate the subjective motivation of the enterprises and protect the interests of both parties.However,with the increasing number of its application,the negative effects of it has emerged."High valuation and high premium" brought by the performance commitment cannot let the company meet its targets.Not only does not protect the interests of investors,but also may cause goodwill impairment.To some extent,this may affect the long-term stable of enterprises.Therefore,the motivation of using performance compensation commitment and its practical effect has become the focus of many scholars.In this paper,the existing research results on performance compensation commitments are firstly reviewed and summarized.The case study method is adopted to analyze the motivation and economic consequences of the performance compensation commitments used in the process of M&A of Company B by Company L.The main research idea is to briefly introduce the two parties,the transaction process and the design and completion of the performance compensation commitment firstly.Then,the motivation of the performance compensation commitment and the expected economic consequences are analyzed in detail from the perspective of both parties.In this paper,the economic consequences of the performance compensation commitment are measured in terms of the synergistic effects of the M&A,which are reflected in both accounting performance and market response.The accounting performance is analyzed in terms of operational synergy,management synergy and financial synergy and the market reaction is measured quantitatively by CAR and BHAR,which indicates the short-term and long-term market reactions.The event study method means the impact of the event on the stock market.The case reveals that the performance compensation commitment can improve the synergy effect of M&A effectively to some extent.By breakdown of the time period,we may find that the performance compensation commitments not only can enhance the share price and market performance of listed companies during the commitment period,but also bringing operational,managerial and financial synergies.However,with the end of the event period,due to the disappearance of the binding effect,the growth speed of the performance starts to slow down or even decreases significantly.The synergistic effect of the M&A is also weakened.Finally,this article finds that reasonable use of performance compensation commitments can effectively improve business performance during the commitment period.Based on the conclusions obtained in this paper,suggestions are made on how companies can use performance compensation commitments more reasonably and on how regulators can further improve the performance compensation commitment system.