Analysis Of The Impact Of Venture Capital In Corporate Governance

With the development of Chinese capital market and financial system reform,venture capital has been gradually known as a new type of financing.Compared with traditional debt financing,venture capital has unique advantages.It not only can meet the financing needs of the invested companies in a short period of time,but also can improve the corporate governance structure in the long run considering its ability to intervene in the business management activities.However,venture capital institutions are also profit-seeking,and the involvement of venture capital will also cause problems including equity dilution and transfer of control rights.Therefore,researches on how venture capital affects corporate governance can help entrepreneurs to correctly understand and make full use of venture capital,and also help promote the development of venture capital in China.This paper takes GigaDevice as the research object,and uses the literature research method and the case study method to comprehensively apply theoretical and practical knowledge.To explore the governance effect of venture capital,this paper analyzes the changes in governance structure,organizational form,financial status and innovation ability of GigaDevice after the introduction of venture capital,and finally proposes suggestions about how to improve corporate governance and develop venture capital.Through the analysis,this paper finds that venture capital has improved the corporate governance structure of GigaDevice,which is helpful to the shaping and promotion of the core competitiveness.As venture capital invested GigaDevice in the form of equity,it promoted the optimization of ownership structure in both equity concentration and equity balance.Secondly,by entering the board of director,venture capital has changed the board size and membership structure,which is conducive to the improvement of the board's operating mechanism and the enhancement of the independence of the board.In addition,venture capital also used the way of Valuation Adjustment Mechanism agreement,joint investment and resident supervisor to supervise and restrain GigaDevice,which is helpful to the perfection of the incentive and restraint mechanism.In general,VC has alleviated the agency problem of GigaDevice.Although it has not significantly affected the first type of agency cost,it has reduced the second type of agency cost,which has improved the corporate governance of GigaDevice.At the same time,it should be vigilant that after the introduction of venture capital,GigaDevice also faced the problem that the shareholding of the controlling shareholder was greatly diluted,and the potential risk of transfer of control of the company might occur.Finally,this paper evaluates the governance effect of venture capital from two aspects: financial status and innovation ability.In terms of financial situation,this paper finds that the ROE and EPS of GigaDevice are both higher than those of the control group.And in terms of innovation ability,this paper finds that thanks to venture capital,the innovation ability index of GigaDevice increased year by year.Based upon the above analysis,this paper comes to the following conclusions: VC will significantly affect the equity structure of the invested enterprise,which is conducive to enhancing the independence of the board and improving the incentive and restraint mechanism,thus helping to reduce the agency cost.Therefore,this paper puts forward three suggestions based on the case of GigaDevice.First,enterprises should reasonably assess their own capital needs,introduce venture capital in a timely manner,and make full use of the value-added services provided by venture capital to seize development opportunities.Secondly,enterprises should carefully choose VC institutions,establish effective negotiation and negotiation mechanisms with them,and strive for win-win cooperation.Thirdly,in order to ensure controlling interest,entrepreneurs should also guard against the dispersion of equity,through the establishment of equity transfer restriction agreements,the introduction of joint venture,etc.Based upon the analysis of the GigaDevice case,this paper intends to assist entrepreneurs in fully understanding the advantages and disadvantages of venture capital,and provide Chinese small and medium-sized enterprises with some reference for the introduction of venture capital.