Performance compensation commitment and long-term M&A performance

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.