Research On The Relationship Between Innovation Of Financial Instruments And The Governance Mechanism Of Private Corporation In China

Venture capital is a 'high-risk and high-rewards' investment. As a financialcontract, financial instruments can contract the investor with financial markets. Thedifferences of financial instruments selected by investors not only influence theefficiency of financing, the structure of finance, but also the governing mechanism ofthe corporate conducted by profit allocation, encourage&control, transfer of control etc.'High-risk and high-rewards' are two crucial characters of Venture capital. The capitalfrom common investors is not suitable for venture capital because this two characters.Financial instruments in venture capital investment need innovation because theyare not suitable for transfer risk from venture investment. The innovation includes twoaspects: 1) pure innovation to financial instruments;and 2) to use traditional financialinstruments into new fields of venture investment. As a new corporation, venturecorporations need not only capital, but management, market operation as well. Theventure capital must satisfy these needs. Inspecting from the angle of investors, theygenerally put more eyes to operation of the venture firm to assure their capital's safetyand profit's realization, and to decrease the lose due to information asymmetry andhigh risk. Venture firm generally use private equity to fund their capital in mostwestern countries. Lacking of formal financial intermediary, the risk control dependson the mechanism in venture capital and the experience from investor. In themechanism, financial instruments conduct capital into venture corporate, and more,they decide the structure of profit allocation, the relationship between investors andowner of enterprise, and the character of corporate governance. The end to bettercorporate governance is to build a mechanism, which may produce a fair, efficientallocation system. This mechanism makes a good relationship between financialmarket and venture enterprise.Theory research should never be divorced from the object's history and reality.China's venture capital originated from 90s', 20th century. Because of abnormaloperation and lack of experience of venture capital in China, most of our research isbased on foreign success experience. On the other hand, the lag of our financial systemand financial instruments' developing confines venture capital.So we conclude that the innovation of financial instrument can enhance themechanism of enterprise invested by venture capital.The primary innovations in this thesis are summarized as the following.(1) Researching the mechanism of corporate governance from the angle offinancial instruments.(2) Based on the characters of venture enterprise, modeling a stage governingmechanism.(3) Combination with China's reality, from the angle of zoological financeexploring administrative levels of capital market and financial instruments'development.