Analysis Of Information Asymmetry Risk In Private Equity Investment

With the rapid development of Private Equity Fund, it has become an influential force in the global capital market. In recent years, Chinese private equity market has gone through a prosperous development. Several well known private equity cases spring up in china, and private equity market has become a vigorous part of Chinese capital market.Information asymmetry, externality, and the lack of effective supervisory measure are hampering the growth of private equity market. Thus, it is necessary to study the risk factors the of operation of Private Equity fund, especially the risk factors resulted from information asymmetry, this thesis is going to analyze the fundamentals of Private Equity investment process, identify the risk factors of Private Equity fund operation, and then focus on the analysis of adverse selection and moral hazard problems, which is resulted from information asymmetry. In the stage of project screening, the candidate enterprises have informational advantage over Private equity investors, because they have a better understanding of their business. Therefore, there is adverse selection risk in the private equity market. The result is that the enterprises with good project and management ability will quit the market. Based on the information economics theory, this paper is going to find the solution to adverse selection problems. The enterprise may use their business plan as a signal to deliver information. The investors may put forward equity arrangement menu, and enterprise choose the suitable one according to their conditions.In the stage of project management, the enterprise management may impair the interests of investors while pursuing their own interests. This paper combine the Principal-Agent theory and business practice to put forward ways to mitigate the moral hazard in private equity market.