Study On Legal Issues Of Valuation Adjustment Mechanism In China

Finance, the core of modern economy, is inseparable from the real economy andplays an important role in the steady growth, structure adjusting, transformationpromoting and people ’s process improving. The upgrading of China’s economy,needs the deepening of the financial system, and requires Capital markets tocontinuously improve the ability of resource optimization. Along with China ’s rapideconomic development, the expansion of domestic private equity funds are attractingmore and more investors and financial participations and the private equity funds hasgradually become a very important part of t China’s capital market. Especially inrecent years, with foreign private equity funds in China’s capital market has becomeincreasingly active," agreement on gambling "(Valuation adjustment mechanism) asa valuation adjustment mechanism in investment activities are gaining more and moreuse.Compared with foreign mature capital markets, private equity funds in China arestill in infancy and need a great upgrade and improvement on legal environment,overall scale and operational level. In stark contrast to the rapid development of themarket, private equity funds in China have not established a complete legal and policysystem. Over the past ten years, private equity has been wandering in between factsand norms, the legal effect of an agreement on gambling has not been clearly defined.In practice, numerous cases of private equity investment, triggered by theagreement on gambling disputes are emerging, making an agreement on gamblingissues related to the theory and practical circles become common focus of attention.What is an agreement on gambling? what is the existence of the economic, socialbackground? How to define its legal nature? is there legal obstacles in practice? Howto deal with their legal risks? how to improve the relevant legal system? This paperattempts to study the legal nature of an agreement on gambling of private equityfunds.Firstly, this paper introduces the concept of private equity funds and agreementon gambling, and analyzes the value and common contents of agreement on gambling.This paper argues that the gambling agreement, with the actual results to adjust thevaluation of corporation, would solve the problem of asymmetric information andagency between corporate management and private equity funds and other financialinvestors.Subsequently, based on comprehensively analysis of the legal nature of anagreement on gambling and legal relations, the paper finds that the legal nature of anagreement on gambling are very complex, arguing that agreement on gambling is analeatory contract with incentive and hedging effects. Then this paper describes theclassic cases and basic principles of gambling agreement using in private equity fundsinvestment.Finally,this paper analyzes the legal obstacles,such as antitrust review, offshorecorporate governance, equity transfer and protection of the interests of minority shareholders, which the gambling agreement may face, under China’s current legalframework and proposes legislative proposals from convertible securities, terminationclause and stock-market listing and other aspects.