M&A performance commitments and insider trading: ‘Listen to their words’ or ‘watch their actions’?

Whether performance commitment will become a tool for insiders to pursue self-interest through cashing out at a high price is an important issue worthy of research. While academics generally agree that performance commitments bring positive synergies to both sides of M&A, some scholars have begun to focus on the reasons and economic consequences behind the failure of performance commitments recently. Using data from 850 A-share listed firms in China over the period from 2008 to 2019, we examine the relationship between performance commitments and insider trading by the acquirer. The results show that the greater the degree of performance commitments, the larger the scale of stock sales by the acquirer's executives and the smaller the scale of their net stock purchases after the announcement of M&A, which exhibits heterogeneity across different corporate property rights and performance commitment characteristics. The above findings suggest that high performance commitment is a tool for insiders to “speculation”. This paper innovatively reveals the self-interested motives and negative economic consequences of signing high performance commitments from the view of insider trading, and it provides a new perspective for investors to recognize the investment risks.