Analysis On Motivation And Economic Consequence Of Enterprise Performance Commitment

With premium mergers and acquisitions becoming the norm in the Chinese market,in order to reduce information asymmetry,inflated link valuations,and damage to the interests of small and medium shareholders in mergers and acquisitions,my country has introduced a performance commitment mechanism,but with the continuous use of performance commitments in corporate mergers and acquisitions as the number increased,some problems gradually emerged.In recent years,the number of transactions completed by “stepping on the line” with a performance commitment completion rate between 100% and 110% has been increasing,and a considerable number of target companies have “changed their faces” in performance immediately after the performance commitment period ends,triggering the close attention of investors and regulatory agencies began to doubt the authenticity of its performance promises.According to the existing literature,the fulfillment of performance commitments can be divided into two types: one is due to the good profitability of the enterprise itself and the reasonable setting of performance commitment goals,etc.The performance commitment cannot be achieved due to one or more reasons such as unreasonable setting of performance commitment targets,but the unconventional means adopted by the enterprise in order to avoid performance compensation and maintain the interests of relevant personnel make the performance commitment reach the target.The achievement of the target is often accompanied by Performance promises "stepping on the line" to meet the standard and "changing face" immediately after reaching the standard will cause serious damage to the interests of the acquirer and small and medium shareholders.Therefore,this article starts from the second type of "stepping the line" performance commitment to conduct research,focusing on the following aspects: the motivation for the company’s performance commitment to "step the line" to meet the standard,what means are used to make the performance commitment "stepping the line" reach the standard and"stepping the line" "The economic consequences of meeting the target.Based on the theory of information asymmetry,principal-agent theory,signal transmission theory and incomplete contract theory,this thesis selects the Asia-Pacific pharmaceutical industry’s merger and acquisition of Shanghai New peak as the case study object of this thesis.The transaction process and the performance compensation plan agreed above,and a detailed analysis of the motivation and means for the realization of Shanghai New peak performance commitment "stepping on the line",as well as the economic consequences after the performance commitment ends,on this basis,the conclusions and inspirations of this article are put forward.This thesis argues that after Shanghai New peak was acquired,it was unable to fulfill its performance commitments but finally "stepped on the line" to meet the standards.There are three reasons for the realization of its performance commitments: first,the incentive clauses in the performance compensation of the acquirer and Shanghai New peak,and to maintain Driven by the appreciation of the share price of Asia Pacific Pharmaceuticals held by it;second,in order to avoid high performance compensation after the failure of performance promises and the joint and several liability of the actual controller,and to protect its own interests;third,Pan-China certified public accountants hired by Asia Pacific Pharmaceuticals The failure of third-party institutions such as law firms and Essence Securities has given Shanghai New peak a loophole to exploit.There are two ways for Shanghai New peak to "step on the line" in its performance commitments: first,through fictitious transactions to achieve inflated profits to make the performance commitments up to the standards;"Insider" control actually controls the overall operation of the target company.The above together constitute the motivation and means for Shanghai New peak performance commitment to meet the standards.After completing the “stepping on the line” and meeting the standards in this way,there has been a major “face change” in performance,and the stock price and profitability of Asia Pacific Pharmaceuticals have been severely affected.Therefore,this thesis believes that when an enterprise signs a performance commitment in an M&A,it cannot push all the issues to the target company as soon as the transaction is over.At the beginning,enterprises should pay attention to the reasonable evaluation of the value of the target company before the merger and acquisition,so as to make a reasonable valuation and performance commitment goals.After the transaction is completed,they should pay attention to the integration of the target company and establish effective internal control and external supervision of the target company,so as to ensure that the whole process of M&A is controllable from the transaction to the end of the commitment period and then to the complete integration.This not only protects the enterprise itself from serious risks,but also safeguards the rights and interests of small and medium shareholders,and has a certain role in promoting market development.