Impact On The Profitability Of The Company's Private Equity Investments

Private equity fund (PE) is kind of innovation financing tool, refers to equityinvestments in unlisted companies, by cultivating them growth and then benefit fromexiting.It can not only to solve the financing problems of SMEs, but also to enhancethe management capacity and ultimately improve the profitability of the enterprise.Although PE develops in China not so long, but in recent years it develops rapidlythus plays an increasingly important role in China’s economic development.There were a lot of domestic research results about PE, but considering thelimitations of the sample date, there were little empirical researches which select thecompanies listed on GEM as the samples. Thus this paper researches from the role ofthe generalized PE to find out whether the PE background enterprise showed strongerprofitability compared to non-PE background enterprise, especially bases on the datafrom GEM, and finally provide policy advice for private equity investment.Firstly,establishing the theoretical analysis framework for private equityinvestment impact on profitability of corporate.After investing we find that PE canplay its role as follows:alleviate the problem of corporate finance, improve corporategovernance and enhance operational capacity and boost company for listing. Throughthese ways PE can improve companies’ future earnings capability.Secondly, Reviewing the PE development experience of foreign, then analyzePE market in china from following aspects: the development process,the investmentindustry situation,fund-raising and investing,return on investment.We aslo select thespecific cases for analysing the profitability of companies which were invested by PE.Thirdly, According to the aforementioned theory,we selecting153companieslisted company on the GEM which were listed before December31as the samples toempirially research the effects of PE. Handling the annual datas from2009to2010and futher to classifiy whether they have PE background. The results from the panelmodels prove that: Private equity will show the positive impact on the profitability of the company. Firm size is negatively correlated with profitability of the company.Theasset-liability ratio is positively correlated with corporate profitability.Finally, based on the full text of paper we suggest that China should vigorouslydevelop the private equity to well play its role of financial support for china’s realeconomy. The conclusion of the paper answers the question of what is the relationsbetween private equity and the profitability of invested companies.At the same time,combined with China’s actual situation, proposes the policy advice for the futuredevelopment of private equity. It has practical significance for reform of China’sfinancial system,growth of companies and even industrial restructuring.