Abstract
Identifying and effectively managing growth models for small and medium enterprises (SMEs) poses a significant challenge for entrepreneurs. Prior research has indicated that the dominant model is an acquisition-led growth strategy. Our paper introduces a novel acquisition growth model for SMEs in China, which incorporates the use of valuation adjustment mechanism (VAM) clauses in M&A contracts. We thoroughly analyze the financial implications of this innovative model on SME growth, the specific SME profiles that favor this approach, and the prevalent types of VAM clauses adopted by these SMEs. All hypotheses were rigorously tested using primary data from Chinese public SME companies. The results reveal a positive financial impact of VAM clauses in M&A contracts on SME growth. It was found that SMEs with lower equity concentration or smaller holdings are more likely to adopt the VAM Clauses Model, and the inclusion of equity payments as compensation in the VAM clause is highly common in practice. These findings hold significant implications for both theoretical research on SMEs and the practical strategies of entrepreneurs.
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