A Study On The Causes And Economic Consequences Of The Loss Of Control Of The Subsidiary

In the capital market,merger and acquisition is one of the most important means for enterprises to achieve rapid expansion.In recent years,with the continuous growth of our economy,the market ushered in one and another wave of mergers and acquisitions.For enterprises,merger and acquisition can integrate resources,realize the complementarity of the two sides of the merger,and then help enterprises achieve the goals of increasing market share,diversified development,and improving economic earnings.However,due to unclear objectives of M&A,unreasonable price setting of both sides of M&A,defects in terms such as performance commitment of M&A agreement and poor integration effect after M&A,M&A has certain risks and failed cases are also common.In recent years,in many merger and acquisition cases,the subsidiaries refused to cooperate with the parent company’s audit work and the parent company applied for arbitration.Generally speaking,the phenomenon of out-of-control subsidiaries has a huge impact on enterprises,which makes it difficult for enterprises to reflect the real economic situation in financial statements,thus affecting investors’ confidence and leading to the decline of the company’s stock price and other serious consequences.It is of positive significance for enterprise managers,policy makers and other stakeholders to study how to reduce the runaway risk of subsidiaries from the root.This paper firstly gives an overall description of the lost-of-control phenomenon of subsidiaries in the market,and analyzes the reasons for the frequent out-of-control of subsidiaries and the economic consequences of lost-of-control events through the overall study of several cases.It is found that cross-border merger and acquisition,lack of control over subsidiaries,high premium and high performance commitment are the three important causes of subsidiary runaway.In addition,the lost-of-control event will lead to the decline of the company’s stock price and performance,and the company will be warned by the Shanghai and Shenzhen exchanges.At the same time,this paper takes Dongwang Intelligent Systems Engineering Co.,Ltd,a subsidiary of Etrol Technology,as a case for specific analysis.In 2019,just two years later,the management of Dongwang Intelligent Systems Engineering Co.,Ltd out-of-control due to Coe’s refusal to pay performance commitment compensation.The parent-subsidiary company once went to court.Therefore,Etrol Technology was delisted and changed into ST Etrol Technology.Taking this case as the starting point,this paper introduces the experience of the merger and acquisition of Etrol Technology in 2017 and the whole process of Dongwang Intelligent Systems Engineering Co.,Ltd l in 2019.This paper makes a detailed analysis of the causes and negative effects of the out-of-control subsidiaries,and finally draws a conclusion and provides relevant suggestions to the enterprises with the intention to merge or the risks after the merger.The research shows that there are some problems such as unreasonable governance structure,excessively high M&A premium and excessively high performance commitment.In view of these problems,this paper puts forward some suggestions,such as selecting merger object carefully,formulating reasonable merger terms and improving risk control management system.At present,there are relatively few studies on the subsidiary out of control.This paper attempts to supplement the existing literature by studying the safety control technology.In addition,with the rising enthusiasm for mergers and acquisitions in the market,it is expected that there will be more and more out-of-control phenomena of subsidiaries.The study of this problem has guiding significance for practice.