Make a promise: the valuation adjustment mechanism in Chinese private target acquisitions
The valuation adjustment mechanism (VAM) is a contingent-payment contractual arrangement used in the Chinese mergers and acquisitions (M&As) market. The ‘two-direction payment’ design of Chinese VAMs can reduce deal uncertainty and generate value, especially for poorly performing companies that...
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| Format: | Article |
| Language: | English |
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Routledge
2021
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| Online Access: | https://eprints.nottingham.ac.uk/65093/ |
| _version_ | 1848800185850789888 |
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| author | Bi, Xiaogang |
| author_facet | Bi, Xiaogang |
| author_sort | Bi, Xiaogang |
| building | Nottingham Research Data Repository |
| collection | Online Access |
| description | The valuation adjustment mechanism (VAM) is a contingent-payment contractual arrangement used in the Chinese mergers and acquisitions (M&As) market. The ‘two-direction payment’ design of Chinese VAMs can reduce deal uncertainty and generate value, especially for poorly performing companies that can use VAM contracts to boost short-term performance. I find in this empirical investigation that acquirers applying VAM terms have significantly higher market returns after addressing endogeneity. I also document that poorly performing bidders sign larger VAM contracts, pay higher bid premiums and achieve higher operating performance, and which types of firms are more likely to adopt a VAM in transactions. |
| first_indexed | 2025-11-14T20:47:33Z |
| format | Article |
| id | nottingham-65093 |
| institution | University of Nottingham Malaysia Campus |
| institution_category | Local University |
| language | English |
| last_indexed | 2025-11-14T20:47:33Z |
| publishDate | 2021 |
| publisher | Routledge |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | nottingham-650932021-04-12T06:49:31Z https://eprints.nottingham.ac.uk/65093/ Make a promise: the valuation adjustment mechanism in Chinese private target acquisitions Bi, Xiaogang The valuation adjustment mechanism (VAM) is a contingent-payment contractual arrangement used in the Chinese mergers and acquisitions (M&As) market. The ‘two-direction payment’ design of Chinese VAMs can reduce deal uncertainty and generate value, especially for poorly performing companies that can use VAM contracts to boost short-term performance. I find in this empirical investigation that acquirers applying VAM terms have significantly higher market returns after addressing endogeneity. I also document that poorly performing bidders sign larger VAM contracts, pay higher bid premiums and achieve higher operating performance, and which types of firms are more likely to adopt a VAM in transactions. Routledge 2021-03-25 Article PeerReviewed application/pdf en cc_by https://eprints.nottingham.ac.uk/65093/1/Make%20a%20promise%20the%20valuation%20adjustment%20mechanism%20in%20Chinese%20private%20target%20acquisitions.pdf Bi, Xiaogang (2021) Make a promise: the valuation adjustment mechanism in Chinese private target acquisitions. The European Journal of Finance . pp. 1-24. ISSN 1351-847X Valuation adjustment mechanism; mergers and acquisitions; takeovers; contract design; contingent payment http://dx.doi.org/10.1080/1351847X.2021.1903963 doi:10.1080/1351847X.2021.1903963 doi:10.1080/1351847X.2021.1903963 |
| spellingShingle | Valuation adjustment mechanism; mergers and acquisitions; takeovers; contract design; contingent payment Bi, Xiaogang Make a promise: the valuation adjustment mechanism in Chinese private target acquisitions |
| title | Make a promise: the valuation adjustment mechanism in Chinese private target acquisitions |
| title_full | Make a promise: the valuation adjustment mechanism in Chinese private target acquisitions |
| title_fullStr | Make a promise: the valuation adjustment mechanism in Chinese private target acquisitions |
| title_full_unstemmed | Make a promise: the valuation adjustment mechanism in Chinese private target acquisitions |
| title_short | Make a promise: the valuation adjustment mechanism in Chinese private target acquisitions |
| title_sort | make a promise: the valuation adjustment mechanism in chinese private target acquisitions |
| topic | Valuation adjustment mechanism; mergers and acquisitions; takeovers; contract design; contingent payment |
| url | https://eprints.nottingham.ac.uk/65093/ https://eprints.nottingham.ac.uk/65093/ https://eprints.nottingham.ac.uk/65093/ |