Risks Of Using Private Equity As A Way Of Financing By Private Enterprises

Private enterprises in our country play an important role in national economic develpoment and economic restructuring, but because of various institutional arrangements, and the inherent shortcomings of private enterprises’ themselves,80% of private enterprises have the financing problem. At indirect financing, the difficulty in getting the bank loans is much more than that of national big enterprises. At direct financing, whether to issue bonds or IPO, variety of restrictions is standing in the way of private enterprises, therefore, the financing issue of private enterprises has been a pressing problem.The rise and development of private equity(PE) in our country maybe a breakthrough of the financing problem of private enterprises. Compares with financing in the stock market and making loan by banks, the PE is the better way in financing for the private enterprise. Because the qualification limit of once average financing size is lower than others. PE is the hot topic on financing innovation. The operation of PE programs goes through conception,negotiation,contracting, exiting and many other aspects, containing much risk in whole process, for that failure in each aspect is possible. Now it’s common to see the private enterprise using PE to broaden the financing channels. Undeniable, the success of such big brands like Sina,Mengniu ect. are firmly linked to PE, but there are also some enterprises go bankrupt like Taizinai and some be acquired by their competitor like Nanfu and Yongle. Risk and capital are simultaneous to enterprises which use PE as a financing instrument. Therefore, it is important to distinguish and circumvent the risks. It is of great significance to strengthen the study of PE financing risk management of enterprises.This article is constructed by six parts.The first part:Describing the background and significance of this topic,and also the research method.The second part:Respectively reviewed domestic and foreign research on corporate equity financing and PE investment, thus,establishing the theoretical basis of this article.The third part:Defying the private enterprise, PE and some other related concepts. Explaining the operation mechanism of PE, its development in China and its economic value to private enterprises in our country.The fourth part:Theoretical analysis. Discussing risk factors and their control of the private enterprise’s using PE as a financing instrument, such as the risk of undervalue the company, the loss of control over the company by the gambling agreement and brand risk.The fifth part:Case studies. Through the case of Yongle to illustrate the necessity of risk control when private enterprises in our country use PE as a financing instrument.The sixth part:On the basis of explaining problems, proposing some methods and measures of improvement. Finally,drawing some regulary conclusions and suggestion on the risk control of private enterprises’using PE as a financing instrument.This article combines the methods of theoretical analysis and case studies. Studing the operation of PE in-depth. Analyzing systemically the compose, reason and influence of risk in the whole process, at last, concluding the practical method of risk controlling. It must have guiding significance to the practice work.The contribution of this article lies in the analysis of unfavourable factors in using PE as a financing instrument, so as to summarize risks and make effective risk control measures.