The Study On Law Of Valuation Adjustment Mechanism In Private Equity Investment

The Valuation Adjustment Agreement(VAM),in other words,the agreement on gambling,is generally regarded as an agreement between both investment companies and finance companies to the uncertainties of future when two sides reach an agreement on the investment.The so called “valuation ”,is in fact the estimation to the value of companies.It means the investment companies have to estimate the value of target companies before proposing an investment.However,a dilemma exists between the process as the investment companies usually tend to an conservative evaluation because the lack of sufficient information while the finance companies,on the other hand,prefer an higher estimate to gain more funds.Therefore,the “valuation” was put forward to cope with this issue,which means the investment companies could impose a specific indicator to the former estimate of finance companies based on the future performance.The agreement on gambling is actually an agreement between both investment companies and finance companies to the uncertainties of future.If the indicator can not be reached,the investment companies could exercise privileges.The VAM is firstly brought to the China's investment area by the overseas venture capital institutions.It is widely used in our country because it can effectively deal with the risk of the development of the target enterprise,the uncertainty and the asymmetry of the information to the target enterprise value assessment.In the meanwhile,however,many famous enterprises also got into troubles and disputes.Under such circumstances,a research which focusing on the legal nature and the implement of VAM in China,and giving clear answers to questions mentioned above,has a significant meaning among theory domain,legal practice,or practice in VAM.The paper is divided into five parts:The first part is the introduction,including the background and significance of this research,the literature review,the research methods and the innovation and deficiency of this paper.The second part is the theory of this paper.As the background of VAM,the private equity investment is firstly introduced,which consists of its definition,concept,details,features,operation procedures and exit mechanisms.After that,the theoretical generalizations about VAM including the definitions and key elements are also proposed.Finally,the analysis of the properties of VAM will be conduced.The third part is the present situation of VAM.Firstly,I will introduce the necessity of improving laws and regulations on VAM by showing its the current application status.Moreover,relevant laws and regulations in China as well as several classical cases about VAM are also presented in this part.The fourth part describes problems of VAM encountered in practice,such as the ambiguities of its legal natures,uncertainties of its legality,differences on the legal subject,unclear effect,existence of barrier on implementation and defect on supervision,etc.The fifth part propose suggestions to improve the related laws and regulations of VAM,including clarify the legal status of VAM,specify the main part of VAM,establish the determination principle of VAM,loosen foreign capital transfer,rebuild supervisory system,etc.