The Legal Effect And Theory Basis Of VAM

On January 26,2016,the Shanghai Municipal Development and Reform Commission,Shanghai Municipal Finance Bureau and Shanghai Municipal Science and Technology Commission jointly issued《the compensation for interim measures for the administration of Shanghai angel investment》,which aims to promote private equity investment activities and reduce investment risk by the way of compensation from the Government to flourish the innovation activities.The Government’s"endorsement" cannot fundamentally resolve the investment risk.The risk of Private equity mainly stems from asymmetric information between investor and financier and uncertainty caused by the external market environment.In order to avoid loss and guarantee return on investment,foreign private equity investor creatively designed the valuation adjustment mechanism.The mechanism has been gradually introduced and widely used in China,called the VAM.VAM has a very positive effect,firstly,the terms of the agreement could help investor and financier temporarily lay the valuation disputes aside,promote cooperation between the two sides;secondly,VAM effectively incentives and constraints the financier,solving agent’s moral hazard problems.VAM’s validity has not been given official response until the Supreme People’s Court of "Hai Fu Investment" judgment defines the legal effect of VAM.The paper firstly comments on the judicial case and makes the VAM refereeing rules clear,furthermore introduce VAM and prove the rationality from the perspective of the theory,and concludes with advice to avoid legal risk in the VAM.Apart from the introduction,this paper is divided into four parts.The first Chapter draws problems from real cases,focuses on "Hai Fu Investment"and related cases,makes the current effect on cognitive and decision in the judicial field clear.The Supreme People’s Court’s rule,namely "to bet against companies is null and void,to bet against shareholder is effective",do well in maintaining the market trading and protecting financial innovation.The second Chapter is from the perspective of legal relationship of VAM,and by the contrast of aleatory contracts,warranties contracts,option contracts,reveal the uniqueness of VAM,and concludes that VAM is atypical of commercial contracts.According to the practice of VAM,summarize the VAM standards,terms and pros and cons of the terms,expecting to a comprehensive understanding of the VAM.The third Chapter is from the perspective of information asymmetry to prove the rationality of VAM.On the one hand,VAM makes the parties lay the valuation differences aside and reach a cooperation,on the other hand signal transfer function of the VAM to prevent bad money drives out good money in the private equity market.In addition,through positive encouragement and punishment mechanism,the VAM will buddle the profit of actual controller with the valuation of the enterprise to make the actual controller due diligence and reduce moral hazard.The fourth Chapter is from the practical point to give constructive opinions on both sides,in order to avoid legal risk in the VAM.The private equity should strengthen due diligence and reasonable to bet using tools,such as the use of arbitration to resolve the dispute;the financier can take the repeated game of VAM,set various indicators and other ways to avoid risks.