Motivation Of Chinese Enterprises And Economic Consequences Of Gambling Agreement

Valuation Adjustment Mechanism is a system to be built, when the inventers andfinanciers agree on the financing contract. As the environment changes so quickly,Both sides cannot know the performance of the company, so a system to redistributethe interests between the two sides is needed. VAM is a ordinary commercial terms indeveloped countries, and Full Ratchet Provision is the prototype of it. When Mengniulist on the HK stock exchange in2004, people began to think about the reason whyMengniu is so successful. In this case the VAM signed between Mengniu and VC casepeople’s attention. More and more Chinese companies use the VAM in their financingplans.In this paper, the operation of the VAM will be researched in the cases of Mengniuand Yongle, in addition, a lot of others cases will also be analysed. The author try toanswer the following two question:(1)Why so many companies use the VAM in theirfinancing plans, as the VAM is so unjust.(2) What factors will affect the result of theVAM, and what is the key issue the entrepreneur should think of?The conclusions of this paper are:(1) Principal-Agent theory Option theory Incomplete Contract theory and Financing theory analyze the theory value of theVAM, from a different perspective.(2) As the VAM is unjust, one of the reason why somany companies use the VAM is financing dilemma.(3) Control transfer andmanagers’ shortsight are the key factors the entrepreneur should think of.