A Study On The Mechanism Of China's Private Equity Exit

This paper uses cost-benefit approach on the various factors that impact the way and the time of the exit of private equity. Then we make a sort of the preference ways of the private equity on the single factor. In this paper, the various factors are divided into two types: the cost factors and the yield factors. The cost factors that analyzed include: the cost caused by the information asymmetry, the corporate governance cost, the liquidity cost, the transaction cost as well as the opportunity cost caused by the time restrictions of the private equity funds. The benefit factors that analyzed include: synergies, the future financing capacity, the proceeds brought about by the hot-selling of new shares and the proceeds formed by reputation. On the basis of the analysis above, we use these factors to analyze the case of Taizi Milk Group's exit strategy, and make a simple comparison between the research result and the actual conduction.In the end, we put forward some proposals on the problems appeared in China's capital market: (1) We must try to establish a multi-level capital market system, including the national stock exchange market, the GEM market, the regional securities market and the property rights trading markets. We must enhance the liquidity, stability and the transparency of the various markets; (2) We should establish an effective intermediary services environment, in which the various parts of private equity investment will be closer together, the complex investment target and the several rounds, small division of investment process will be a smooth capital circulation and value-added process. These will provide better service for the exit of private equity; (3) We must perfect the relevant law and regulations to ensure the private equity divests in ways of IPO, acquisition, second selling, management repurchase and bankruptcy liquidation. With the construction of multi-level capital market system as well as the improvement of the relevant laws and regulations, the environment of China's private equity exit would be better. All these improvement will attract more foreign and local private equity funds, and their investment will make a promotion of the financial sector and the economy in China.