Ontrol Rights Contest Between Founding Shareholders And Private Equity Investors

The heat of the discussion and research on the competition for control rights ofGOME has not faded. Yet, in the2012, battle for control rights between the founderof NVC and private equity once again attract people’s attention. In recent years, withthe rise of private investment, cooperation between private enterprises is increasinghere in China. Meanwhile the frictions between the founder and private investorsbegin to emerge, which leads to frequent control rights competition. Compared toheated debate of control rights allocation between founder and private in practicecircles, the study of this issue has been stagnant in the theoretical circles. In the pastmost of the related research focused on modeling and theoretical discussion, whilelack in cases study and data support, which is mainly due to difficulty to acquire therelevant information and data, and thus hinder the further academic research in thisarea. NVC event is a typical control rights competition event between founder andprivate capitalists. As a listed company, this event has a large influence on thesociety and it lasted for a long time, which provides rich and reliable information andmaterial for the study of competition for control rights between private equity andprivate enterprise. This article develop detailed interpretation and analysis of theNVC events, hoping to enrich the study of corporate control fight betweenenterprises and private investors as well as provide a fresh case to entrepreneurs andprivate investors, so as to promote healthy and smooth development of privateenterprise and private capital.In order to analysis the NVC event, this article firstly do a research on NVC’shistory under the background of social environment, then constructs a concreteframework to analysis NVC event from the perspective of social capital, based onthe theory of incomplete contract and social capital, with the introduction of someconcepts, such as corporate growth, financing constraints, constraints of wealth andentrenchment effect. The analysis tools are trend analysis, comparative analysis, ratioanalysis and other basic financial analysis. By using case analysis methods, this article focus on a detailed interpretation of causes and consequences of the battle forcontrol rights of NVC, trying to explore why private enterprises choose privatecapital when the corporate lack of funds, what causes the control right competitionbetween founder and private equity, how to allocate control rights betweenentrepreneurs and private equity investors, what roles the social capital played in thegame of control right allocation, and whether the final results of this fight incompliance with the maximization of enterprise value. Studies have shown that theNVC event rooted in excessive growth of private enterprise; the direct cause of thisevent is the agency problems of the founders as a CEO; the entrenchment effect ofthe founder as a manager will protect the founder from losing the control rights.Throughout the entire event, social capital plays an important role and the final resultof NVC event is in line with the maximization of corporation value.In order to avoid the occurrence of the control contests, the founder of the privateenterprises should make appropriate financing plans in advance, pay attention tocontrol rights while negotiating with PE, and appropriately deal with negative issuescaused by social capital. For the aspect of PE, they should focus on the exclusiveissue of social capital and the replaceable of the founder as manager, so as to escapehold-up problem.