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Research On Risk Prevention Methods In PE Investment

Posted on:2014-11-11Degree:MasterType:Thesis
Country:ChinaCandidate:Z F LiuFull Text:PDF
GTID:2256330401478078Subject:Law
Abstract/Summary:PDF Full Text Request
Private Equity (PE) investment initially entered into China’s investment marketin form of international PE. With the continuous development of China’s economyand capital markets, the domestic PE has grown up in strong momentum. The reasonfor the growth, in addition to the factors of the macro-economic level, is that PE hasits own apparently advantages. As an innovative form of investment and financing inthe finance field, PE solve the financing difficulties of small and medium enterpriseswhich are hard to get bank loans and issue securities of equity, and has createdenormous wealth for investors. PE has become a new driving force for promotingeconomic growth.However, as of the capitals injecting into the enterprise which is invested by PE,the investment risk is emerged because of moral risks and adverse selection caused byagency relationship and asymmetric information. Therefore, PE usually constrainedthe needs of both parties by the investment arrangements to prevent risks. Thecommon methods are as followings: terms of priority, special claims and specialinstitutional arrangements. Analyzing the PE investments in China’s practice, we cansee that the most common method within the special institutional arrangements is Valuation Adjustment Mechanism (VAM). Many gambling cases have initiated wavesin China’s capital market, such as MengNiu case, YOLO case, TaiZi Milk case andXCMG case. In particular, the first Jurisprudence of gambling case——HaiFuinvestment case, gave rise to a wide range of discussion and thinking about thefollowing issues: How to define the legitimacy of the effectiveness of VAM? What isthe real value of VAM? Is there any method of risk prevention which can supplementor replace VAM in PE?The perspective of this dissertation is VAM and the preferred shares which arethe two most important methods of risk prevention in PE Investment. The main line isminority shareholders’(investors) rights protection and balance of the interests ofshareholders. In the part of VAM, the main line is reflected in PE’s rights protectionand balance of the interests of Investment and financing. In the part of the preferredshares, the main line is reflected in preferred shareholders’ rights protection andbalance of the interests of preferred shareholders and common shareholders.The dissertation is divided into six parts, the main contents of which are asfollows: In Part1, the author will introduce the background, significance and methodsof this dissertation. In Part2, the author will analyze the HaiFu investment case andleads to research questions of this dissertation. In Part3, the author will describe theprofile of PE, including the basic characters of PE, risks and methods of riskprevention and exit path. The last three parts are the most important contents of thedissertation. In Part4and Part5, the author will analyze VAM and the preferredshares from three levels including the basic properties, legal analysis and practicalapplication, and try to find the intrinsic links between the VAM and the preferredshares. In Part6, the author will elaborate suggestions for the improvement of VAMand the preferred shares based on learning from foreign legislative practice in the fieldof commercial law through the view of the protection of shareholders’ equity.
Keywords/Search Tags:Private Equity (PE), Risk Prevention, ValuationAdjustment Mechanism (VAM), the Preferred Shares
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