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

Di Song, Jun Su, Chao Yang and Na Shen

Pacific-Basin Finance Journal, 2019, vol. 57, issue C

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.

Keywords: Performance commitment; Top management team; Self-interests; Regulatory change; Crash risk; Short-termism (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:57:y:2019:i:c:s0927538x18302324

DOI: 10.1016/j.pacfin.2018.08.006

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