Rsearch On The Impact Of Capital Market Mispricing On M&A Performance Compensation Commitment

As China’s economy enters a stage of high-quality development,it is urgent to build a new development pattern in which the modern capital market with Chinese characteristics precisely enables the real economy.As a key part,mergers and acquisitions and restructuring of listed companies can effectively promote industrial agglomeration,layout optimization and structural adjustment of the real economy,and push the opening of the capital market to a higher level.However,the domestic capital market is still facing a complex situation,with a lot of "noise" in the capital market price that does not accurately reflect the fundamental value of the stock,and asymmetric access to market information that makes the M&A parties’ psychological expectations of the transaction pricing deviate.The M&A party,believing that its true strength is greater than its outward performance,assesses the underlying assets at a high premium,while the M&A party chooses to pay the transaction consideration in shares to achieve effective arbitrage when the assets are overpriced.In order to facilitate the game of transaction price between the two parties to reach an agreement as soon as possible,and to enhance the efficiency and synergy effect of M&A,the SFC formally introduced the regulations on performance compensation commitment in 2008.Today,it is being sought after by more and more companies as a new transaction pricing adjustment mechanism.Research and practice have shown that,due to the macroeconomic situation and the influence of economic indicators such as the maximisation of shareholders’ wealth by micro-entities,overpricing is common in China’s capital markets.This paper discusses the role of performance compensation commitments in the context of "capital market mispricing(overpricing)-signing of M&A performance compensation commitments-contractual design tendencies of commitments-completion effect of commitments".-The paper examines the role of capital market mispricing in the chain of "signingperformance-completion" of performance compensation commitments in a holistic manner.The study examines the impact of capital market mispricing on the complete chain of "signing-performance-completion" of performance compensation commitments.In particular,the study further introduces information asymmetry and agency costs as a moderating mechanism when studying the motivation for signing commitments,and follows the path of "capital market overpricing-information asymmetry,agency costs-signing M&A performance compensation commitments".The incentive effect is also introduced as a moderating mechanism when studying the performance completion effect,and is explored along the path of "capital market overpricing-incentive effect-enhancing the performance completion effect at a later stage".The incentive effect is also introduced as a moderating mechanism in the study of the completion effect.In this regard,based on information asymmetry theory,signaling theory,principalagent theory,incentive compatibility theory and stock over-valuation theory,this study uses transaction data of A-share listed companies with successful mergers and acquisitions and manually collated performance compensation commitment data during2008-2018 to conduct an empirical analysis and obtain the following conclusions: first,the capital market Firstly,when the capital market is overpriced,the more likely the M&A parties will agree on performance compensation commitments in restructuring transactions;secondly,the tendency of overpricing on the design of performance compensation commitment contracts is:(1)the M&A parties are more likely to agree on a "make-up consideration" clause as performance compensation;(2)the M&A parties are more likely to agree on performance compensation guarantees;(3)the M&A parties are more likely to agree to a full(two-way)performance compensation commitment;(4)the M&A parties are more likely to agree to a shorter performance compensation commitment period;(5)the M&A parties are more likely to agree on the treatment of M&A goodwill impairment;third,the effect of overpricing on the later completion of the M&A performance compensation commitment is that the higher the valuation,the less satisfactory is the later completion of the performance compensation commitment.Fourth,in further mechanism tests,it is found that the higher the degree of information asymmetry and agency costs,the stronger the existential effect of capital market mispricing on performance compensation commitments;and the good incentive effect can significantly weaken the negative effect of capital market mispricing on the completion of performance compensation commitments at a later stage.In the robustness check,the paper adopts the instrumental variables approach and replaces the asset market pricing proxy,and the analysis finds that the main findings remain valid.This paper takes capital market mispricing as an entry point and explores the impact of price distortion on the game between two parties in performance compensation commitments through signalling to potential M&A parties,which has some theoretical value in terms of the effectiveness of capital market pricing.At the same time,the inclusion of mispricing in the whole chain of compensation commitments expands the research perspective on the mechanisms influencing subsequent behavioural decisions on performance compensation commitments.The practical aspect also gives relevant suggestions for the supervision,use and rational view of performance compensation commitments by multiple entities such as government,companies and capital market participants,and promotes the speeding up of restructuring transaction market integration,further promoting the capital market along the road of high-quality development.