Abstract
Based on the data of Chinese A-share listed companies during the period from 2007 to 2016, this paper examined the impact of the performance compensation commitments in backdoor listing on corporate earnings management. The empirical results show that performance commitments have increased backdoor listed companies’ earnings management level; the promised performance growth rate is positively correlated with earnings management level; share compensation has a stronger impact on earnings management than cash compensation. In addition, compared with state-owned enterprises, the association between performance compensation commitments and earnings management is more pronounced in non-state-owned firms.
Highlights
Asset restructuring is one of the essential ways for companies to adjust resource allocation
2.1 Performance compensation commitments Based on our research content, this paper mainly analyzes the literature about the application consequences of performance compensation commitments
Cadman finds that when the commitment is difficult to complete, companies that sign two-way performance compensation commitments are more inclined to carry out earnings management than one-way [9]
Summary
Asset restructuring is one of the essential ways for companies to adjust resource allocation. Backdoor listing makes a company grow more energetic, and brings risks to enterprises. The most critical issue in this transaction is how to value the profitability of the target in the future. This uncertainty will bring risks to the companies, so parties to the transaction often have differences in how to price. Performance compensation commitments in acquisition can solve this problem to a certain extent, and it brings a crisis that the target company cannot fulfil the promise. In order to achieve the promised profits and avoid high compensation, the target company tends to adopt earnings management to optimize performance, which misleads the outside public and harms the interests of investors. It is of profound significance to study the performance commitment and earnings management in backdoor listings
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