On The Risk Of Chinese Listed Companies’ Performance Commitments Of M&A

In the practice of mergers and acquisitions of listed companies in China,performance commitments have been widely used.The original intention of using performance commitments in M&A is to reduce information asymmetry,motivate management and reduce principal-agent problems,thereby promoting a more efficient and orderly M&A.However,performance commitments have revealed a number of risk factors in the process of application.Therefore,it is important to analyse the risks of performance commitments in the context of specific cases of failed performance pledges,to identify the possible risk factors of performance commitments and to prevent them in a focused manner,which is of practical significance for market regulators to improve the relevant regulations and for market investors to identify and raise their risk awareness.Based on the existing theories and practices,this thesis conducts an in-depth study on the risks of performance commitments in the context of the specific case of Tianze Information’s M&A of You Keshu.The case study explores the causes of performance commitment risks from both sides of the M&A restructuring;explores effective ways to prevent performance commitment risks from three perspectives,namely,the performance commitment offeror,the performance commitment offeree and the performance commitment scheme;finally,draws relevant case conclusions and policy insights based on the existing analysis.Through the case study of Tianze Information’s M&A of You Keshu using performance commitments,the thesis concludes the following four main points: Firstly,the risk factors of performance commitments involve six risk factors at three levels: the performance commitment offeror,the performance commitment offeree and the performance commitment scheme.Among them,the valuation risk at the level of performance commitment offeror is the highest,which should attract the key attention of listed companies;the performance commitment targets setting risk at the level of performance commitment scheme and the earnings management risk at the level of performance commitment offeror are higher,which also need to be focused when dealing with related risks;other risk factors such as the resource integration risk,internal control system risk and compensation agreement risk need to be targeted.Secondly,the risks of performance commitments are reflected in the financial effect and market reaction of the listed company.Due to the existence of performance commitment risks,it will bring negative financial effect and market reaction to the listed company.Thirdly,the risks of performance commitments are due to the impure motives of the parties to the M&A in using performance commitments.The performance commitment offeror makes unreasonable performance commitments for the motive of raising the valuation of the underlying assets and helping capital shareholders to cash in their capital,and the performance commitment offeree accepted the performance commitments for the motive of embellishing the listed company’s performance and transferring the risk of high valuation of the underlying assets,which together led to the creation of performance commitment risks.Fourthly,in order to prevent performance commitment risks,it is necessary for the performance commitment offeror to consider industry risk factors and improve the quality of the underlying assets,for the performance commitment offeree to strengthen resource integration and not to "believe" in performance commitments,to improve internal control systems and strengthen performance supervision,and for the performance commitment scheme to set reasonable performance commitment targets and strengthen the binding force of performance compensation.The companies should work together to reduce the negative impact of performance commitment risks.