Research On The Motivation And Economic Consequences Of Performance Commitment In The Backdoor Listing

With the onslaught of M&A fever,the performance commitment mechanism has increasingly become an active force that cannot be ignored in the capital market.According to the relevant theory,the performance commitment before M&A is a bridge to transmit signals between the subject company and the market,reducing the risk of information asymmetry between the two sides of the transaction,narrowing the difference in valuation,and facilitating the M&A transaction’s implementation.After the completion of an M&A,the performance commitment helps to ensure the realization of M&A synergies by providing incentives and constraints to the management of the subject company.However,there are some differences between the practical effects and theories,namely that excessive performance targets are likely to prompt the subject company to implement surplus management during the commitment period,leading to an elevated risk of performance change after the commitment period.Moreover,failure to meet performance targets may trigger controlling shareholders to maliciously pledge equity to delay their obligations of performance compensation,and ultimately damages the interests of minority shareholders.Therefore,the performance commitment has attracted extensive research in academia,but the current research on performance commitment is limited to ordinary M&A,and few scholars have focused on performance commitment under the background of backdoor listing.This thesis focuses on backdoor listing,selects Luo Xin Pharmaceutical as the research object,and analyzes the real motivation and economic consequences of using performance commitment.Based on the review of domestic and foreign literature,combining relevant theories with the actual situation of backdoor cases,this thesis introduces the transaction overview and the agreement on performance commitment in the backdoor listing process of Luo Xin Pharmaceutical and analyzes the motivations of performance commitment,which lays a foundation for the subsequent study of economic consequences.This thesis comprehensively uses event study method,financial index method and economic value added method to explore the economic consequences of performance commitment in backdoor listing from four aspects: completion,market reaction,synergistic effect and economic value added,and summarizes the problems existing in performance commitment.The event study method is used to observe the market response to the announcement of performance commitments by Luo Xin Pharmaceutical on four event dates;Operational,financial and managerial synergies are analyzed by the financial indicator method and vertical comparisons are combined with horizontal comparisons of industry;At the same time,the introduction of EVA model compensates for the limitations of traditional financial index analysis.The results show that the motivations of performance commitment in the backdoor process of Luo Xin Pharmaceutical are to improve the efficiency of backdoor listing,improve the valuation level of underlying assets,reduce the principal-agent cost,increase the company’s stock price and obtain synergies of merger and acquisition.In terms of economic consequences,performance commitment has a significant improvement effect on the market response of the enterprise,but the effect is not long-term.Performance commitment plays a limited role in helping company realize synergies and it improves the economic value added and brings wealth effect to shareholders.The main problems in performance commitment mainly include not paying enough attention to the development trend of the industry,unreasonable performance commitment targets and the delay of performance compensation obligation due to the equity pledge of major shareholders.Based on the above analysis,the thesis makes some suggestions for optimization from three aspects: the trend of industry development,the program of performance commitment and the regulatory mechanism,which provides certain reference value for companies with the need of backdoor listing to use performance commitment reasonably.