Performance compensation commitment and long-term M&A performance

ABSTRACT

The article stresses the significance of performance compensation commitment (PCC) in merger and acquisition (M&A) transactions. By exploring manually collected PCCs peculiar to China’s M&A market, we find that: (i) acquirer’s post-M&A long-term performance relates positively to absolute compensation but negatively to relative compensation (scaled by target size); (ii) an inverted U-shaped relationship exists between M&A synergism and compensation amount; (iii) PCC effects are persistent and unrelated to commitment duration. The results suggest that an appropriately designed PCC may enhance acquirer’s performance and M&A synergism through channels of motivating the target and boosting bilateral collaboration.

KEYWORDS:

• Performance compensation commitment
• compensation amount
• compensation duration
• M&A performance
• M&A synergy

JEL CLASSIFICATION CODES:

• G34
• D81
• D82
• G12

Acknowledgments

This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors.

Disclosure statement

No potential conflict of interest was reported by the author(s).