Study On Private Enterprises’ Imbalance Of Control From The Perspective Of Equity Financing

In the course of development of private enterprises, capital is crucial for businessgrowth. Due to historical reasons, the private enterprises who want to obtain financingthrough a bank are difficult, and bonds issued or IPO have strict restrictions. Therefore,equity financing becomes a necessary way of financing of private enterprises.2012,NVC’s founding shareholders on the capital side and fight for control led to academicand media attention，Understanding of the parties differ on the incident. The reasonbehind the event is the behavior of non-compliance with corporate governance rules ofWu Changjiang, or the capital side of the seizure of power behavior? The impact ofequity financing bringing to NVC is more good than harm, or more harm than good?How to avoid these similar incidents during private enterprises do equity financing?For these problems, we hope to find the answer through this typical case studyDomestic and foreign scholars have done a lot research on equity financing andcontrol issues related to. Overall, China’s private enterprises have a strong preferencefor equity financing. In the choice of financing, companies paid less attention to thecontrol of the enterprise and future development. About control theory, scholars view ismore agreeable financing structure will affect the capital structure, and capital structuredetermines the allocation of the modern corporate cash flow, and determines theallocation of control. Currently academia, few people research equity financingaffecting the control rights, relevant case studies also have some limitations. The paperchoose from a single point of equity financing specific analysis of its impact on thecontrol, focusing on private enterprises preferred private equity financing, study theimpact of private enterprises after the introduction of external equity capital forcorporate control.This paper selects equity financing and control theory as the research background,and selects the principal-agent theory, stakeholder theory, and control theory as thetheoretical basis. From a macroeconomic point of view and their own development, thearticle analyzes the importance of equity financing for the development of privateenterprises. And it from a private equity financing and control over the configurationpoint of view in-depth analysis of the impact of equity financing for private enterprisesto control risk. On the basis of combining previous research and as a example of controlfight event in NVC lighting, the analysis found that NVC internal governance are not standardized, long-term strategic investor and founding shareholders and corporateinconsistent stakeholders interference interaction of many factors, to led the NVC fightfor control situation, then caused huge losses to the enterprise. Finally, analyzing theinevitability of NVC to choose equity financing and the influence to the control rightstructure.The inevitability choose of equity financing is determined by the internal andexternal financial position of market relations decisions. The affect over theconfiguration of control is mainly reflected in the shareholders’ meeting, the board andmanagement three levels.We draw conclusions of the study are: equity financing is the inevitable choice ofprivate enterprises in the development process. Social capital involved in changing theinternal governance mechanism, coupled with inadequate of governance structures andunstandardized of private management in enterprises, exacerbate conflicts of interestsbetween capital side and the founding shareholders. Game behavior both on privatebenefits of control result in a significant loss of business. Further stakeholderinvolvement corporate governance, which will affect business decisions. Thus, toimprove the external financing environment for private enterprise and internalgovernance mechanisms on the development of private enterprises has importantsignificance.According to the theory and case studies, this paper put forward some reasonablesuggestions to the stage of development of private enterprises in the equity financing.Private enterprises to choose the form and size of equity financing, should adapt to theirstage of development. Companies trying to minimize the risk of equity financing, forexample, turn to a professional agency. Private enterprises should be carefully chosenfinancial investors or strategic investors, as equity financing object. More importantly,companies must comply with operating rules, and constantly improve the internalgovernance, and take into account the interests of stakeholders in the business. Inaddition it can also consider improving founding shareholder protection system, theintroduction of the founding shareholders protection clause can guarantee control andstability.