Research On Risk Management Of The Valuation Adjustment Mechanism

Since the introduction in 2003 in China,the use of Valuation Adjustment Mechanism become increasingly widely.Companies have successfully used the Valuation Adjustment Mechanism and developed quickly,however failed cases are still exit,they may result in litigation,disputes equity,even losing the control.In the past case of Valuation Adjustment Mechanism,mergers and acquisitions make bilateral cooperation,which undoubtedly affects the signing of the interests of both sides.Studies have shown that the failure rate of the Valuation Adjustment Mechanism is as high as 69%.It is not difficult to draw a conclusion that it cannot solve the uncertainty as expected.So it is imminent to analyze the risk of gambling agreements and create a corresponding risk prevention system.The creation of such risk prevention mechanism can not only be very helpful in exercising the real utility of VAM which create win-win position for both sides of the agreement,but also in the future development of Chinese capital market.This article investigates the risk of VAM and the prevention related issues by using case research method.First,it express the research background of this article,the meaning and the value of such research.Then,it introduces the definition and recent most resent research status of VAM.By introducing the connotation and the theoretical foundation of VAM,it helps the readers to further understand the meaning of VAM.After that,the article makes a comparison analysis of the VAMs signed by firm related to other cases of VAM under the circumstance that both signing party of the VAM know the risk lied in VAMs.Finally,it come up with the risk prevention mechanism of VAM.This article,using the analysis of Firm's VAM as a leading clue,connection with other understanding and researches of VAMs,makes the conclusion that the main risks in VAM includes: performance target risks,competition risk in operation,valuation risk,management behavior risk,market analysis and invest target risk.Based on these research,this article categories these risks into three categories: pre-signing VAM,in signing VAM,and after signing VAM.This article creates the all-process risk prevention mechanism of Firm:(1)Before signing the agreement,investor needs to analysis the market and industrial development status in selecting proper investment target firm.(2)In signing the VAM: firm need to come up with appropriate performance standards and design multi-dimensional VAM.(3)After signing the VAM: debtors' management team need to operate in benefit of the firm's long-term development.Moreover,they need to improve their management ability,at the same time,promote their core-competitiveness.