Research On PE’s Valuation Adjustment Mechanism

PE as exotic is just unfolding in China, which are capital market financing andcorporation innovation’s new financial intermediaries to promote our economic andsocial development.In PE operation, assess target company’s value is the premise condition to ascertaininvestment agreements basic terms,investment amount,equity share and so on, sovaluation is the cornerstone of PE. However, target company development prospect’suncertainty and investment and financing both sides information’s asymmetry,leading to difficult to reach consensuses between two sides’ valuation. In order toeliminate the valuation differences,successful reach investment agreement, investmentand financing company founders or managements arrange a estimate adjustmentmechanism based on future performance, which is valuation adjustment mechanism.Valuation adjustment mechanism is contract mechanism’s arrangement, became oneof the important things about PE, controversies are more than other mechanisms in PE,so it became a" hot topic" and "frontier problem".Except the introduction and conclusion, this paper is divided into four chapters. In thefirst chapter of this paper, I mainly summarized valuation adjustment mechanism inPE. The concept of PE is the starting point, and then I briefly introduced PE operationmode and target company value assessment mechanism, discussed valuationadjustment mechanism’s roots--investment and financing both sides asymmetryinformation, thereby produced valuation adjustment mechanism, i.e., valuationadjustment mechanism. The second chapter of this paper, firstly, expounded valuation adjustment mechanismtheory basis from the angle of economics; and from the practical point of view, usethe case to analyze static state of valuation adjustment mechanism operation’smechanism and characters; thereby proclaim valuation adjustment mechanism’sincentive mechanism、 restriction mechanism and risk compensation effects, alsopointed out its reverse incentive.The third chapter of this paper, undertaken above chapter’s valuation adjustmentmechanism practical operation and continued analyzing, summarized complex andvarious types of valuation adjustment mechanism’s arrangement in practice; anddiscuss valuation adjustment mechanism’s operation mode change from dynamicangle, provided research framework for following valuation adjustment mechanismoperation legal dilemmas.The fourth chapter of this paper, analyzed legal obstacles of implemented valuationadjustment mechanism in Chinese legal environment. Especially, carried outvaluation adjustment mechanism refer to equity transfer and IPO facing auditpredicament in China.The fifth chapter of this paper, I think the government regulation should take easingpolicy instead of tough policy for market widely accepted valuation adjustmentmechanism. Respect market choice and Party autonomy. Better regulation is a kind ofservice; the government ought to propagate valuation adjustment mechanism’s risk toentrepreneurs.Finally, I thought equity division reform、directed additional shares、listed company’sreconstruction introduce valuation adjustment mechanism early or late in the domesticcapital market. PE can be recognized or not is expected.