Research On Incentives Mechanism For Linear Contract In Private Equity Funds

With the rapid development of private equity,PE plays a more and more important role in the economy. However, because of information asymmetry between investors and capitalist, between investors and entrepreneurs, then there is complex conflict of interest,can not achieve Pareto optimal. So in the case of asymmetric information,we use game theory and contract theory to solve incentive problem between investors and capitalist, between investors and entrepreneurs. So to improve the return on PE has become the current urgent problem,which is the purpose of this research.This paper includes two aspects, firstly, I research incentives mechanism between investors and capitalist; secondly,I research incentives mechanism between investors and entrepreneurs .To research the incentives mechanism between investors and capitalist, I respectively do it for corporate PE fund and limited partnership PE fund. About the theory,we use contract theory of commission --- agent theory, combined with motivation theory and game theory, to establish a dynamic long-term game model . Solving the model and find that long-term incentive model is better than the short-term models to incentive capitalist, indicating that the model has some theoretical and practical significance. Then compared the two forms of organization, found the limited partnership is better than corporate on incentive capitalist. So I propose how to promote the development of limited partnership. To research the incentives mechanism between capitalist and entrepreneurs, use phased investment and transfer the equity at the right time to incentive entrepreneurs. And then demonstrate our conclusions through the financing process of Mengniu Dairy Company .Finally, summary and outlook the research on Incentives Mechanism for linear contract in private equity funds.