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Performance commitment in acquisitions, regulatory change and market crash risk–evidence from China

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  • Song, Di
  • Su, Jun
  • Yang, Chao
  • Shen, Na

Abstract

We find that performance commitment provisions in Chinese acquisitions show positive economic outcomes measured by improved abnormal returns and lower market crash risk using hand-collected data. We further illustrate that the positive effects of performance commitment contracts are alleviated when TMTs have a high level of self-interests. We also investigate that, regulatory adjustments actually worsen the positive effect of performance commitment in acquisitions. The fact shows the short-termism effect of Chinese capital market imposed by the regulatory changing risk. Our study complements the earnout literature and show distinctive Chinese characteristics.

Suggested Citation

  • Song, Di & Su, Jun & Yang, Chao & Shen, Na, 2019. "Performance commitment in acquisitions, regulatory change and market crash risk–evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    • Handle: RePEc:eee:pacfin:v:57:y:2019:i:c:s0927538x18302324
    DOI: 10.1016/j.pacfin.2018.08.006
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    References listed on IDEAS

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    2. Qingbang Mu & Wanxiao Zhang & Wenxiu Hu, 2023. "Enterprise Transformation and Innovation: A Study of Performance Compensation from the Perspective of Information Asymmetry," Sustainability, MDPI, vol. 15(17), pages 1-23, August.
    3. Cheng, Zijian & Liu, Zhangxin (Frank) & Wang, Isabel Zhe & Zhao, Xingju, 2024. "Reverse merger audit fee premium: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 94(C).
    4. Fan, Cunbin & Zou, Guohao & Wang, Jiawen, 2024. "M&A performance commitments and insider trading: ‘Listen to their words’ or ‘watch their actions’?," International Review of Financial Analysis, Elsevier, vol. 91(C).
    5. Song, Di & Shen, Na & Su, Jun, 2023. "A catering perspective of performance commitment-evidence from acquisitions in China," Pacific-Basin Finance Journal, Elsevier, vol. 78(C).

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