Performance Evaluation of Feirongda Merger and Acquisition of Bowei Communication under Performance Commitment

Abstract

In order to obtain a higher valuation and premium, the controlling shareholders will generally sign a higher performance acceptance agreement when the listed companies conduct mergers and acquisitions. Performance commitments will be compensated if they are not met. Taking Fei Rongda's acquisition of 51% of Bowei Communications as an example, this paper intends to use the event study method to discuss the impact of performance commitment and compensation on M&A performance from a short-term perspective. The results show that performance commitment has a positive impact on the short-term performance of M&A. Based on this, this paper proposes that the acquirer should reasonably set the amount of performance commitment and strengthen government supervision to evaluate performance commitment.