Analysis Of The Motivation And Effect Of Private Equity Investment Participation

Private Equity(PE)originated in the United States.Its most notable feature is to raise funds from non-public investors,make equity investments in non-listed companies with development potential,and finally achieve exit to obtain capital appreciation and withdraw.The main methods are listing,mergers and acquisitions,and management buyouts.Since 2000,China's PE industry market has grown rapidly,industry competition has intensified,and regulatory upgrades have become an active part of the Chinese economy.In particular,the launch of the GEM in 2009 has broadened the exit channel for PE,which has pushed forward the development of PE industry.There are two very different views on the influence of PE on listed companies.The “Certification Supervision Hypothesis” believes that PE can use its professional knowledge,rich management experience and extensive network of relationships to provide value-added services to enterprises,ameliorate companies' governance level,enhance their profitability,development capabilities and management levels,while improving its capital value and achieve a "win-win" between the two.The "short-sight effect hypothesis" believes that PE's high proportion of dividends and short-term investment characteristics will damage the long-term competitiveness of enterprises.PE may create its own reputation by improving their performance,such as successful IPO cases,high return on investment,successful exit,etc.,and may also carry out financial restructuring of the invested company through capital operation and financial management to achieve short-term benefits and exit successfully.In western countries,the capital market is mature,the structure of corporate governance is well-developed and PE attaches great importance to value investment,which can better play an active role in supervising.However,in China,listed companies still have defects such as immature governance structure,unsound financial system,and imperfect laws and regulations.At the same time,due to the strict IPO audit system,some companies will conduct earnings management in order to meet the listing standards,which makes listed companies frequently “performance change face” after successful IPO.On the one hand,as a professional investor,PE has the motive to act as an active shareholder within the company,play the active supervisory role,improve the governance structure and management level of companies,and therefore can inhibit the company's tendency to violate the regulations;on the other hand,because of the explanation of adverse selection theory,the existence of enterprises with good business performance may not introduce PE in their company.Non-compliant enterprises with poor performance are more inclined to introduce PE to share operational risks and improve the IPO audit rate.In addition,PE may be based on the purpose of short-term arbitrage,it is difficult to exert influence within the invested company,and can only passively undertake the company's decision to violate the regulations.Therefore,there is a strong correlation between PE and illegal listed companies.In view of this,this paper selects two typical cases of illegal listed companies,Xintai Electric and Jinya Technology,organize the whole process of PE from investment to exit,analyzes the behavior logic of PE participation and the choice of post-investment management mode,and systematically studies the motives of PE participating in illegal listed companies.Economic consequences,thus testing the effectiveness of PE's supervisory function.Firstly,based on the literature review,this paper finds that: PE has a significant effect on the corporate governance,financial decision-making,and value of listed companies,and constructs the research framework of this paper.Secondly,this paper selects two typical illegal listed companies,Xintai Electric and Jinya Technology,to sort out the whole process of PE participation from investment to exit,and to examine the motive from the perspective of PE and listed companies.Thirdly,this paper analyzes the economic consequences of PE participation in illegal listed companies from the four dimensions---board structure,shareholding structure,accounting information quality and company value.The research in this paper finds that,first,from the perspective of investment motivation,PE participates in Xintai Electric and Jinya Technology in order to obtain rich investment income.Among them,short-term PE focuses on investing in prepared listed companies,with the aim of promoting the company's successful IPO as soon as possible;PIPE capital is based on opportunism of short-term arbitrage restructuring;state-owned PE will invest based on political considerations of industry support.For listed companies,the introduction of PE is conducive to obtaining PE resource support,improving the standardization of corporate management,and improving the IPO audit rate.Second,from the perspective of investment effects,the specific findings are:(1)PE is at a disadvantage of control power,the resident directors are becominng a mere formality,and encounter the absence of the supervision mechanism in the invested company;(2)PE fails to identify the accounting fraud problems and regulation-violating behaviours before investing in companies.In the process of participation,PE can only passively accept the financial decision of the enterprise;(3)the short-term behavior of PE has the encroachment on the interests of the circulating shareholders,and the governance effect on the invested company is only reflected in the short-term performance.Upgrade.Finally,the paper comes up with relevant suggestions.The main contributions of this paper are as follows:(1)Existing studies have found that PE plays a supervisory function within the invested company,and some scholars believe that PE has a short-sight effect.This paper separately studies from the perspective of illegal listed companies and selects typical cases of fraudulent listing from the GEM market.This paper enriches the relevant theory of the "short-sight effect hypothesis".(2)The existing research mainly focuses on empirical research and normative research,aiming at a certain stage of PE investment or the impact on a certain aspect of listed companies.This paper sorts out the whole process of PE from investment to exit,and sorts out the characteristics of PE investment behavior,which is difficult to carry out for empirical research on large samples.This paper comprehensively analyzes the economic consequences of PE on illegal listed companies and deepens our understanding of PE investment processes.(3)Existing literature has studied the correlation between institutional investors and listed companies' irregularities,but no scholars studied from the point of view of private equity.This paper selects a typical case of illegal listed companies,which expands the research on corporate violations.