Research On The Effect Of Performance Commitment On The Management Behavior Of Listed Companies

According to Wind database statistics,in January 2023,nearly 80 listed companies on the A stock market issued or updated announcements of major merger and reorganization events,among which 11 listed companies issued or updated announcements of performance commitments.On the one hand,as an important means for listed companies to expand business and adjust industrial structure,merger and reorganization has been paid more and more attention.On the other hand,with the continuous advancement of the registration system reform,the A-share market has become more and more standardized,which will promote the listed companies to increase their willingness to carry out mergers and acquisitions and reorganization,and the means and quantity of mergers and acquisitions and reorganization are expected to be more active.In the merger and reorganization transaction,there exists the problem of information asymmetry between the two sides of the transaction,and the pricing risk brought by this will greatly reduce the success rate of the merger and acquisition transaction.Therefore,the target enterprise can sign a performance commitment agreement with the host enterprise and make a commitment to the company’s performance in the future period,thus helping to alleviate the information asymmetry between the two parties involved in the M&A transaction,reduce the pricing risk in the M&A transaction and improve the success rate of the M&A transaction.However,it was not until April 2008 that China Securities Regulatory Commission published the Measures for the Management of Material Assets and Liabilities Reorganization of Listed Companies by drawing on foreign bet agreements,formally incorporating the provisions of performance commitment agreements into M&A transactions,in an attempt to stabilize the market and protect small and medium investors.However,in recent years,in the actual implementation of performance commitment agreements,there have been a large number of chaotic phenomena such as "performance default","accurate reaching" and "future performance reversal",as well as the management of listed companies after the signing of performance commitment agreements to increase accrued earnings management,related transactions and reduction of holdings.It also raises questions in the industry and academia that performance commitment is opportunistic behavior of executives of listed companies.Whether it is "performance default","accurate target" or "future performance reversal",it will increase the potential risks of small and medium investors and cause the instability of the stock market.In order to explore the reasons behind such chaos,this paper aims to sound the alarm for Chinese small and medium investors by studying the management behavior of listed companies after performance commitment,and at the same time put forward relevant references and suggestions for Chinese regulatory authorities.Based on this,this paper uses listed companies that introduced performance commitment agreements in M&A transactions from 2007 to 2020 as samples to test the impact of performance commitment on earnings management,related transactions and senior executives’ holdings reduction.It is found that after the performance commitment is added to the M&A transactions of listed companies,the number of accrued earnings management and related transactions will increase significantly,and one year after the announcement of performance commitment,the top management of listed companies will significantly reduce their stock holdings.It is proved that after signing performance commitment agreements,listed companies will disguise their performance by increasing accrued earnings management and related transactions,and senior executives of listed companies will reduce their holdings out of arbitrage motive or risk reduction motive.According to the research on performance commitment under different conditions,this paper further finds that adding performance commitment to major asset mergers and acquisitions will increase the possibility of fulfilling performance commitment in the future and significantly reduce the possibility of senior executives selling down their holdings.On the other hand,two-way performance commitments will significantly increase the executive’s future divestment.In addition,it is confirmed that the performance commitment in cash compensation will significantly increase the possibility of the company’s performance reversal in the future.The main implications of this research are:(1)in our capital market,M & A reorganization is still an important means for companies to further develop,and performance commitment has become a basic feature of M & A reorganization.Chinese regulatory authorities should pay more attention to the opportunistic behaviors of listed companies when they sign performance commitments during mergers and acquisitions.At the same time,we should conduct timely external supervision on "high valuation" in M&A transactions.(2)The management of the listed company will increase accrued earnings management and related transactions after signing the M&A performance commitment agreement to meet the performance standards,so as to avoid losses caused by default.Therefore,strengthening the legal restrictions on such behavior will help limit the opportunistic behavior in performance commitment.(3)Small and medium-sized investors should treat the performance commitments signed by listed companies more rationally when making investments,avoid following the trend,and be cautious about mergers and acquisitions with high commitments.