| What the impact of Private Equity Market on companies is the main criticism for assessing its value, because companies are the foundation of the real economy, which is seen as both the starting point and the ending point of financial market. The core of relationships between private firms and entrepreneurs is the principal-agent relationship. Due to asymmetric information, the private equity firms may usually face risks as an adverse selection, moral hazard and hold-up as the principals. That PE can theoretically improve investee firm’s value depends on the solution and mitigation of those risks. Detailed measures of risk solution and mitigation include interest coordination, monitoring and sanction, cooperation, signal transmission, information disclosure and special terms arrangement. Previous empirical studies focus on the discussion of PE’s kinds of effects on investee firms, like.screening effect, value-adding effect, certificating effect, monitoring effect, grandstanding effect, market power effect, spillover effect and so on.Private Equity market have influences on both companies’market performance and business performance, though market performance and business performance are different fundamentally. Based on theoretical analysis and literature reviews, the thesis focusing on three main questions were as follows:whether and how PEs influences on their investee firms’ market performance, whether and how did PEs influence on their investee firms’ business performance, whether and how different PEs have different influences on their investee firms’ market and business performance. The paper chooses the GEM (Growth Enterprises Market) as a sample for empirical studies, because the GEM is the main place for PE’s investment exit, and companies of the GEM are basically from high-tech industry, and they are over-performance in their fields when IPO while under-performance after IPO. What’s more, only little papers were published on this topic.There were 6 chapters in the paper, including 3 monographic reports. The first chapter was introduction and the second chapter was theoretical analysis and literature review. Chapter 3 focused on PE’s influence on three stage market performance of GEM companies as shareholders, which as the first monographic report. Chapter 4 focused on PE’s influence on business performance and its variation of GEM companies. Chapter 5 focused on different PEs had different influence on their investee firms’ market and business performance, PE’s differences were divided into 5 classes, such as differences in equity and organization, differences in market reputation, differences in managers, differences in investment policies and differences in network capacity. Chapter 6 was the part of result and suggestion.In each report, the thesis firstly analyzed the background of the topic to illustrate the basic problems, basic ideas and empirical study plan under the topic. Secondly, nearly 30 sets of PE related data were collected manually from the companies’ prospectus and Wind database for empirical study. Thirdly, basic ideas were checked empirically through descriptive statistics, mean test, univariate regression analysis, multivariate regression analysis, interaction analysis and Heckman two-stage analysis. Meanwhile, to ensure the results’accuracy and stability, the thesis used kinds of methods for verification, which included alternative variable regression analysls, the mean comparison test, Heckman two-stage analysis, total sample and PE-matched sample comparison analysis, direct effect function and indirect effect function comparison analysis, trend observation and empirical comparison analysis, etc.Results of the paper were mainly as follow:(1) PE investment and PC (Political Connection) influenced companies’ market performance in different way and mechanism. PE as shareholders induced more off-line institutional investors joined in IPO auction and thus improved the price-to-earnings ratio, which was seemed as market power effect. Meanwhile, PE would reduce the investee companies’long term CAR significantly in turn. PC only had significantly positive influence on companies’long term CAR, especially when these companies were in low market-oriented region. (2) There was no significant difference in pre-IPO earning management between PE invested companies and common companies. PE as shareholders had two direct effects and several indirect effects on business performance of companies. The two direct effects called adverse selection effect and value-add effect. PE’s indirect effect laid in that PE caused companies different in business performance because PE shareholders were different from common shareholders in managing tax planning, main business income, long debt and technical innovation. (3) In five classes differences of PE, PE’s differences in equity and organization and differences in investment policies both had rather significant influence on investee companies’ market and business performance, PE’s differences market reputation only result in investee companies’ different market performance, PE’s differences in network capacity only make sense for investee companies’ business performance, while PE’s differences in managers had no significant or important influence on either. Specifically, they could influence companies’market and business performance when PE firms were differently in equity background, investment scale, investment period, staged investment, co-investment and holding periods.The results of the paper are meaningful to various participants in PE market, including government, private equity investors, securities investors, investees and agencies. For the government, it should retreat from PE market as a player, or at least improve its ability in investment screening and monitoring. As the market regulator, on one hand, the government firstly should keep and expand the special financial inspection of pre-IPO companies. On the other hand, government should keep building platforms and encouraging policies in development perspective. Most importantly, government should take differentiated policies in accord with PE’s differences. The policies includes encouraging PE’s staged-finaneing, encouraging private PE’s investment, building platform for co-investment, punishing price bulling actions by market power, and encouraging PE long-term holdings. Meanwhile, continuing market-oriented reforms can create a better environment for PE investment.For financing companies, they should firstly be familiar with PE’s operation style and revenue model before searching for a PE investment. Secondly, a co-investment:of stated-owned PE and private PE can improve a company more under china’s current environment. Thirdly, high quality companies should prove their quality by sending signal or information disclosure according to general adverse selection effect of china PE market. What’s more, investee companies should not finance excessively unless their PE investor offer them finance facility. Otherwise, they would result in worse business performance.For private equity fund investors, they firstly should know that PE is not a game of the public. PE investment would get impressive gains if the investee companies IPO successfully, but only very little PE investment can exit by IPO. Secondly, PE firms are different, PE firms who preferred staged-investment are usually better in screening and value-adding, while who are stated-owned have more strength market power. Thirdly, as private equity fund investors, they should restrain PE managers from raising too much long-term debt for investee companies.For PE firms, they would better cooperate with complementary peers. They should pay attentions to auditor and Political connection factors of investees when screening. Most of PE firms in China must strengthen their due diligence efforts and screening ability. For investors in securities market, they would better pay attention to PEs’ influence on their investee companies’ IPO pricing and CAR performance. For agencies in PE market, PE investment would improve the auditors’ reputation effect and cut down its negative effect, so PE is positive for the auditor industry.
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