M&A compensation commitment and stock price crash risk: evidence from China

ABSTRACT

This paper examines the effect of M&A compensation commitment on stock price crash risk using the setting of Chinese M&As that committed performance has been achieved during the commitment period. We observe an increase in stock price crash risk after the expiration of M&A compensation commitment, and the effect is more significant in companies whose committed performance precise completion. Further analyses show that the ex post stock price crash risk is more strengthened in companies with higher agency conflicts and SOEs, but the external governance roles, Big-4 auditors and analysts, can weaken this effect. The channel analysis shows that the bad news is that goodwill impairment loss after the expiration of the commitment period is released, leading to an increasing stock price crash risk. Overall, our finding shows that M&A compensation commitment has an ex post effect on stock price crash risk.

KEYWORDS:

• M&A compensation commitment
• stock price crash risk
• mergers and acquisitions
• goodwill impairment loss

Acknowledgement

Chenyu Zhang acknowledges financial support from the National Natural Science Foundation of China (No.71902006) and Collaborative Innovation Centre for State-owned Assets Administration of Beijing Technology and Business University (No. GZGL202202); Ju Mao acknowledges financial support from the Outstanding Innovative Talents Cultivation Funded Programs 2022 of Renmin Univertity of China (No. 2021000663); Xinshu Mao financial support from the National Natural Science Foundation of China (No.72172009). All errors are ours.

Disclosure statement

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

Additional information

Funding

This work was supported by the National Natural Science Foundation of China [72172009]; National Natural Science Foundation of China [71902006]; Collaborative Innovation Centre for State-owned Assets Administration of Beijing Technology and Business University [No. GZGL202202]; the Outstanding Innovative Talents Cultivation Funded Programs 2022 of Renmin Univertity of China (No. 2021000663).