An Analysis of the Causes and Effects of the Out-of-Control Merger and Acquisition of Subsidiaries—A Case Study of the Great Wall of Culture Company

Abstract

The phenomenon of out-of-control of subsidiaries after mergers and acquisitions is becoming more and more prominent. Effective control of subsidiaries is the most important issue that needs to be paid attention to. How to reasonably and effectively control subsidiaries has become the focus of theoretical and practical research. Taking the acquisition of Jade Education by Great Wall of Culture as an example, this paper analyzes the causes of losing control after the acquisition and analyzes the impact of losing control subsidiaries on the enterprise by means of event research and financial index analysis. The study found that the main reasons for the out-of-control of subsidiaries are unreasonable performance commitment, excessive decentralization caused by cross-border mergers and acquisitions, and out-of-control caused by blind mergers and acquisitions. Moreover, the out-of-control subsidiaries are no longer included in the scope of consolidated statements, which has a significant impact on the operating conditions of enterprises. In order to prevent the subsidiaries from losing control, it is suggested to carefully select the target for merger and acquisition, conduct due diligence on the target enterprise before merger and acquisition, reasonably delegate decision-making power and enrich and improve the performance commitment agreement.