Research On The Motivation And Influence Of Performance Commitment Termination

At present,M&A,as an important way for listed companies to become bigger and stronger,is widely favored by the capital market.With the upsurge of M&A,performance commitment is widely used as a risk management tool.The advantage of performance commitment is that it can not only prevent the risk of M&A and promote the fair transaction,but also make up for the valuation deviation under the information asymmetry.In practice,performance commitment plays a unique role,but at the same time of risk prevention and control,a series of problems also follow.Most of the listed companies will use the income method to evaluate the underlying assets,and the emergence of performance commitment makes investors more optimistic about the future earnings,which exaggerates the valuation of the underlying assets to a certain extent,resulting in the double high phenomenon of "high valuation and high commitment".In addition,the current performance commitment constraints are too single,mainly the profit of the enterprise,which will inevitably lead to short-term behavior of encouraging growth and damage the value of the enterprise.According to statistics,about half of the enterprises have the situation that the performance changes when the commitment expires,and nearly one third of the enterprises have signed performance commitments that are not up to the standard.It can be seen that the signing of performance commitment agreement does not mean that there is no risk.If necessary,the enterprise may have to terminate the performance commitment.This paper selects the case of Dongfang Seiko,which has problems in performance commitment,to study the reasons for the termination of performance commitment agreement and its economic effect in M&A,so as to provide reference for enterprises signing performance commitment agreement.Firstly,this paper reviews the previous studies,focusing on the theories related to performance commitment termination.Secondly,it introduces the basic situation of both sides,the arrangement of performance commitment agreement and the realization of the final performance commitment.Next,based on the theory of information asymmetry and principal-agent,this paper analyzes the termination motivation of performance commitment agreement of Dongfang Seiko,which is mainly divided into two parts:internal factors and external factors.The external factors are mainly affected by the change of relevant subsidy policies and the public’s views on new energy vehicles;The internal factors are:poor performance of subsidiaries,lack of independent management ability,enterprise’s own development needs and so on.Then,this paper makes an in-depth analysis of the impact of the termination of the performance compensation agreement.Research shows that in the short run,the termination of the agreement has a certain negative effect,and the company’s stock price also continues to fall after the announcement.But in the long run,termination has a positive effect on the quality of profit and the development of main business.Finally,this paper summarizes the case and puts forward corresponding suggestions for M&A activities.