A Study On The Effect Of Profit Compensation Approach On Financial Performance Of Acquiring Companies

In corporate M&A activities,the profit commitment compensation system is beneficial to reduce information asymmetry between the two sides of the transaction and reduce the risk of corporate M&A restructuring,and therefore is widely used.According to statistics,the performance commitment signing rate of A-share online game enterprises in M&A in China was 50.91% in 2015 and rose to 71.13% in 2019.The profit compensation method is an important factor affecting the achievement of corporate M&A goals,and the difference of profit compensation method will bring different risks and impacts to both sides of the restructuring and play different incentive and constraint roles.At this stage,there are relatively few studies on the impact of profit commitment compensation methods on the financial performance of acquiring companies,and there are fewer relevant studies focusing on the online game industry.This paper focuses on the impact of different profit compensation methods on the financial performance of acquiring companies.First,this paper conducts a literature study on the theoretical basis related to profit commitment,clarifies the path of the effect of profit compensation methods on the financial performance of the acquiring companies,and proposes event study method and principal component analysis as the financial performance evaluation methods in this paper;second,this paper selects Kaiying network as the case study object to further verify the path of the effect of profit compensation methods on the financial performance of the acquiring companies;finally,this paper Finally,this paper uses event study method and principal component analysis to evaluate the short-term and long-term financial performance of Kaiying Network as a whole.Through the study,this paper draws the following conclusions: First,when the M&A parties sign profit commitments,the choice of share compensation method has a stronger incentive effect,but it will bring high valuation risk and operational short-sightedness risk to the enterprise,and the cash compensation method has a weaker incentive effect,and it will trigger high performance target risk;Second,the highly binding nature of the share-based compensation approach sends a more positive signal to the market through the signaling effect,in terms of market reaction.Third,in terms of financial capability,the risk of the compensation approach to the subject company will have an impact on the financial performance of the acquirer through the integration of the business of both parties,the achievement of the M&A target and the impairment of goodwill.