Research On Private Equity Investment Influence Upon Corporate Governance In China

In recent years, the rapid development of private equity (PE) investments in China rapid attracted many people to research in this field. The majority of the studies focused on the financing function, the operational process and the exit mechanisms of PE. And most researchers put forward the opinion that PE is a valuable solution to solve the financing problem of small and medium enterprises. However, there is little research on the relation between PE and corporate governance, which is the focus of the thesis.I hold the view that the influence PE puts on an invested corporate is not only the investment itself, but also the improvement of corporate governance which is even more valuable. The thesis begins with theoretical studies on corporate governance including the unilateral governance theory and the stakeholder theory. In the theoretical studies part, the causes and solutions of agency problems in corporate governance are also analyzed. Especially, the distinctive dual principal-agent relation of PE investments is introduced as well in this part. The following part is the introduction about the development of PE investments in China.On the basis of theoretical studies, the thesis focuses on the reasons and approaches of the influence exerted by PE to the corporate governance of an invested company, which is the most important part of the thesis. The influence approaches includes ownership structure, board structure, supervisory board structure, incentive and restraint mechanisms and so on, each of which is analyzed respectively. In this part, the valuation adjustment mechanism is studied. Then the argument that PE investments exert profound influence on corporate governance is presented.After the above parts, the case of the investment to China Dairy Holdings by Morgan Stanly, CDH, and Actis is selected to test and verify the argument. This part firstly introduces the background and process of the investment and then compares the differences of the company’s ownership structure, board structure, incentive and restraint mechanisms before and after the investment. The changes of the operating results and the brand value of the company are also used to support the argument. At the end of the thesis are the conclusions and the revelations of the studies.After the theoretical studies and the case studies, the argument that PE investments exert profound influence on corporate governance is verified. The research is not only significant in academic filed, but also meaningful in practice, for it gives Chinese growing businesses some advice to make good advantage of PE investments to improve themselves’corporate governance.