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Private equity investment company governance effect

Author: ChenJianWei
Tutor: JinFang
School: Shanghai Academy of Social Sciences
Course: World economy
Keywords: Private Equity Investment Corporate Governance Capital Structure Principal-Agent
CLC: F832.51
Type: Master's thesis
Year: 2008
Downloads: 824
Quote: 4
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Abstract


As a more important participant in the globalizing world, the role of private equity investment should be concerned. Especially to the developing countries whose market economy and capital market is immature, such as China, the improvement of corporate governance to the invested companies by private equity investment is very important, because only the companies which has good corporate governance can everlasting survive and develop.This paper analyze the behavior of private equity investment based on one of the neo-institutional economics—contractual economics. Other than the ordinary investment relationships, the private equity investment involves dual principal-agent relationships. There is relationship between investors and the private equity capitalists and the relationship between private equity capitalists and the entrepreneurs. In the first relationship, limited partnership is used to avoid the moral hazard of the private equity capitalists. In the second relationship, through the optimal contract, such as equity proportion, security portfolio and staging investment, the private equity capitalists can find the optimal capital structure to avoid the moral hazard of the entrepreneurs. Meanwhile, the private equity capitalists, which have professional financial and management knowledge, monitor and manage the invested corporate themselves helping the invested corporate to construct the framework of the organization etc. Therefore to the invested companies, the private equity investment has the role of improving its’corporate governance.From the related documents, I get the hints of capital structure contract theory which the capital structure can improve the corporate governance through the incentive, signaling and the corporate control. Then this paper construct the framework to access the role of the private equity investment which involves two system—the system of corporate governance structure and corporate governance valuation. And at the end of the paper, I use this accessing system to access a real case—the investment to Shenzhen Development Bank by the Newbridge Capital.The most important point of conclusion from this paper is that the mechanism of the private equity investment and the professional knowledge of private equity capitalists is the main reason of corporate governance role by private investment. This paper also gives some advice to developing the private equity investment market.

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CLC: > Economic > Fiscal, monetary > Finance, banking > China's financial,banking > Financial market
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