The Performance Impact Of VAM Arrangements In M&A Projects

Along with the continuous advancement of China’s economic globalization,M&A and restructuring among enterprises in China’s capital market is now showing a flourishing scene.In China,it is becoming more and more common for companies to use VAM for valuation adjustment in response to the problems of information asymmetry and protection of investors’ interests in the process of M&A and restructuring.When buyers and sellers play against each other regarding the value and price of the subject matter,the specific terms stipulated in the betting agreement are certainly an issue worth considering.This paper intends to take the effect of VAM signed by listed companies in the process of M&A projects on the M&A performance of listed companies as the starting point,and to explore the different effects of different betting terms on short-term M&A performance and long-term M&A performance with the specific arrangement of different betting terms.Although relevant domestic and international studies have focused on the effects of VAM on M&A performance,there is a lack of research that explores the differences in the effects of each betting arrangement on the short-term and long-term M&A performance of M&A firms.The special feature of this paper is to focus on the key influencing factors of corporate M&A performance from information asymmetry theory,incentive theory and principal-agent theory,focus on the betting agreement and its specific clause arrangements,analyze the impact of M&A on the long-term and short-term performance of listed companies,improve the research results of corporate M&A,and contribute to the maximum effectiveness of VAM in M&A transactions.This paper takes a sample of listed companies in Shanghai and Shenzhen A-share main board,small and medium-sized board and GEM from 2014-2019 as the research object,and conducts research in two aspects:(1)To examine the impact of the betting agreement on the M&A performance of listed companies,and to explore whether the betting agreement plays a protective role on the short-term performance and long-term performance of listed companies after M&A.(2)On the basis of the previous study,the impact of the betting contract arrangement on the short-term and long-term performance in M&A of listed companies is further examined in terms of the specific terms of the betting agreement arrangement,including the level of performance commitment,compensation method,compensation direction,and betting period.The following conclusions were obtained from the study.(1)The introduction of VAM in M&A projects will significantly improve M&A performance in the short term,while it is negative for long-term M&A performance.(2)The performance commitment level clause in the betting agreement has a negative effect on M&A performance in the short term,while it does not have a significant effect on long-term performance.(3)According to research on compensation methods in VAM,cash compensation reduces M&A performance in the short term,and share compensation can benefit M&A performance in the short term.However,in the long term,neither compensation method has a significant impact on M&A performance.(4)Among the compensation direction clauses in the VAM,the impact of compensation direction on M&A performance is not significant.(5)In the betting term clause in the betting agreement,the effects of both short-term betting and long-term betting on M&A performance are insignificant.With respect to the study in this paper,we can get some insights that in M&A projects,signing a betting agreement can play a certain positive role in the short term,but not in the long term M&A performance.It is likely that the phenomenon of making high short-term performance in order to complete the betting is bound to depress the later performance,which is detrimental to the long-term development of the company.Different combinations of terms have different effects on the short-term and long-term M&A performance of listed companies,with many terms affecting short-term performance but having little or no effect on long-term performance.Therefore,listed companies should keep a rational view on the role of VAM and set reasonable terms.The regulator should actively participate in improving the terms of VAM by establishing performance betting terms that are more binding for the promising parties on the one hand,and increasing the penalties for inflated performance promises on the other.