Research Of Information Asymmetry And Risk Control On Equity Investment In Western Dairy

In recent years, private equity investment in China has made considerable development which plays an increasingly important role in financial resource allocation, industry consolidation and technological innovation. However, as most of the private equity funds target non-publicly traded corporate equities as investment objects, information asymmetry is serious and constitutes a great challenge for the healthy development of the entire industry in the long run.This paper, on basis of the equity investment in Western Dairy as a case, analyzes the information asymmetry as well as its risks to investors by describing the whole investment process in details, which comes the conclusion that the principal- agent problem under the environment of asymmetric information is the main risk faced by the investor.The study mainly covers three aspects. Firstly, it focuses on the analysis of the types and causes of information asymmetry, as well as its ensuing problems and risks to investors. Secondly, in combination of principal- agent theory framework, the paper argues that the inconsistent utility function between principal and agent is the main reason for forming the agency risk in private equity investment. Thirdly, by studying how state- contingent corporate control right offers the incentive and restraint to the entrepreneur effectively, the paper analyzes the internal working mechanism of different financing instruments and staged investment in respect of alleviating information asymmetry and controlling principal- agent risk. In the end, new investment structure and solution in the case of Western Dairy are put forward and discussed.