Due Diligence Research About Equity Investment Business Of Securities Company

In1990s, some of the securities companies in china began to attempt to engage in direct investment business. Securities companies use their own professional advantage and funds (or the establishment of direct investment funds), discover and invest to high-quality investment projects or enterprises equity, look forward to the target project or business listing or sale of shares when the merger to acquire equity gains. Direct investment business of securities companies, namely equity investment, it is different between equity investment and stock market fund in secondary market trading activities. Equity investment is a direct investment. The investment activities affect the target production and operations, change corporate balance sheets to support enterprises to increase the liquidity of the target, develop new products and technologies, reduce asset-liability ratio, carry on the corporate restructuring or industry consolidation. Equity securities have the following effects:First, securities companies find the projects with development potential, act as a "capital operation ties" effect; Second, securities companies participate in the management, help enterprises solve financing problems, and beneficial to its standard operation as soon as possible to enable enterprises to mature; again, Securities investment help the potential High-end customers, expand the invest scope of high-end customers and channel.In November2011, the Commission issued<securities companies direct investment business regulatory guidelines>, Direct investment business began to change from the pilot business into the regular business in securities companies.Due to the existence of the problem of information asymmetry, security company always have a disadvantage of information in equity investment business, in order to maximize their own interests, the target company are often motivated to conceal to beautify some enterprises operating results. Securities companies carry out a successful equity investment, not to mergers and acquisitions of target company, but to get a satisfactory return on revenue in the exit. Equity investment market is high degree of information asymmetry, the security company with less information Failure to conduct due diligence before making decisions, there may failed to quit in the future, due diligence is in order to have full access to the target enterprise information fully reveal, understand the risks of trading, and to prevent the risk of lack of information.It is important to make a due diligence, information asymmetry is an objective reality, and if you do not carry out due diligence, the securities companies can not fully find the risk in the future, and don’t know the operating status of the target company, the results will not be able to-business the true value of the valuation; for the target enterprises, in order to pursue their own interests to maximize,they always motivated to deliberately distort the information (such as providing false financial statements to conceal the pending litigation in the case of lack of supervision).Securities companies carry out a successful equity investment business, is not whether the merger and reorganization of the target company, but rather whether it has been when exiting a satisfactory income returns. Equity market is highly asymmetric information market, therefore, securities companies need a necessary due diligence. the securities companies carry out due diligence is an important prerequisite and foundation of a successful equity investment business.The article show characteristics of the due diligence, asymmetric information, and further reveals the need for due diligence, and then design a simple due diligence framework.The first part Introduces is about paper’s background, significance, analyzing methods, innovation and shortcomings.The second part is generalization.The third part is the focus of this article, it is due diligence on the need for analysis.The fourth part is analysis of due diligence policy process.The fifth part design a due diligence framework, analyzes the framework of the basic content and information requirements.The sixth part is an example base on ABC company,it is a combination of theory and practice. The Seventh part is Suggestions on due diligence.