Analysis On The Application Of Valuation Adjustment Mechanism In Private Equity Financing

Since the reform and opening up,small and medium-sized enterprises(SMEs)in China have developed rapidly and in large numbers,involving a wide range of industries.They have become an important force in promoting China’s economic development and have made significant contributions to China’s gross domestic product,industrial added value and social employment.However,SMEs in China are facing serious financing difficulties.They are refused loans by banks because of the impossibility of guarantees and mortgages,and their financing channels are narrow.Private equity financing provides new financing channels and ways for SMEs to overcome financing difficulties.China’s entrepreneurship ecological chain is constantly changing,and the capital market is improving day by day,which stimulates the combination of entrepreneurs and capital.Private equity funds focus on equity investment in growth enterprises,and are operated by professional management teams.It is a long-term stable channel for enterprises to connect with the capital market.The valuation adjustment mechanism(VAM)is widely used in investment,financing and mergers and acquisitions as far as possible to achieve reasonable and fair investment transactions,protect the interests of investors reasonably and effectively reduce investment risks by agreeing on future business.From the theoretical point of view,VAM is an important mechanism to coordinate the different conflicts of interests between investors and financiers.This paper will systematically summarize and summarize the information asymmetry theory,contract theory,option theory,principal-agent theory and so on.On the basis of consulting the existing literature,we will seek the theoretical origin and internal logic of VAM,and study the theoretical value of the gambling agreemen from various angles and dimensions.From the practical level,this paper studies the wide and successful application of gambling agreements in private equity financing.By signing the gambling agreements reasonably,it helps financing enterprises to obtain a large amount of fund-raising,expand new financing channels,solve the financing difficulties of small and medium-sized enterprises,achieve leapfrog development,and coordinate the different conflicts of interests between the management and major shareholders of investors and financiers,so as to achieve double benefits and win-win results.This paper is divided into six parts.In the first part of the introduction,the research background and significance of private equity financing and VAM are briefly introduced.The second part is literature review,which introduces the concepts of private equity financing and VAM,and the content planning of the VAM in private equity financing.The third part is the theoretical basis,introducing the theoretical basis of the VAM private equity financing.From the perspective of information asymmetry theory,contract theory,option theory and principal-agent theory,this paper discusses the fundamental and theoretical basis of the VAM.The fourth part is the case brief,which carries on the simple enterprise back to the Xinjiang Torch and Jinda Lighting.The fifth part is a case study.Firstly,it analyses the motivation and necessity of using the VAM in the process of private equity financing of Xinjiang Torch and Jinda Lighting.Then the risks faced by the two sides in signing the VAM are analyzed.Finally,the different effects of the two sides in using the VAM are analyzed,mainly from the perspectives of performance,strategy and organizational structure management.The sixth part is the conclusion and suggestion,and summarizes some enlightenment and experience of enterprises in using the VAM for equity financing.