Study On Valuation Adjustment Mechanism Of Listed Corporations

Along with the economical development of China, more and more enterprises can growth up with high speed. Compare with the traditional enterprises, these new-generation enterprises are willing to acquire fund from various channels, including venture capitals(VC), private equities(PE), bonds, angel investments and so on. However, information asymmetry is very common and inevitable during these investments. On one hand, entrepreneurs have advantages of information than owners of investment banks, means entrepreneurs can decide how to operate their enterprises and long-term strategies, even they can manipulate financial reports to deceive their investors; On the other hand, owners of investment banks have better understanding about their polices of investments. To solve the information asymmetry, they usually will sign up a protocol as valuation adjustment mechanism(VAM) as a channel to communicate better. This essay is intend to research VAM and provide suggestions.This essay is based on two valuation adjustment mechanisms: the VAM between Mengniu Dairy and Morgan Stanley and the VAM between Evergrande and Merrill Lynch. The theory of this essay is information asymmetry. I would like to conduct my comparison from four aspects: the necessarily of VAM, the formats of VAM, the risks of VAM, and the effects of VAM. Basic on the analyze I made, I would like to suggest the enterprises which want to sign up VAM with investment bank should focus on the development of its main business and expand its channels of sales, as well as utilize advanced experience of management. As to those investment banks who want to sign up VAM with enterprises, they should not only set up reasonable targets, but also take macro-economical environment into consideration.