Legal Research On Valuation Adjustment Mechanism In Private Equity Investments

Private equity (PE) investment is a very important component of thecapital markets, many world-renown enterprises relied on capital contributionfrom PE investors during their early development. The domestic PEinvestment market has been emerging rapidly since2006, accompanied bythe fast development of valuation adjustment mechanism (VAM) in PEinvestment. The discussion about VAM hit its prime in2012due to a PEinvestment case decided by the Supreme Court.This dissertation will first define the concept of PE investment, followedby an introduction of VAM in PE investment. This part discusses the originof VAM and the legal relations and characteristics around it, while attemptsto analyse VAM from a law and economics perspective. In the second part ofthis dissertation, the origin of VAM’s legality will be discussed on the basisof jurisprudence. This part will focus on the substance of the decisions on the Gansu PE investment case by the trial court, appellate court and the SupremeCourt respectively, and raises its own opinions on the strategy of usingarbitration to avoid legal risks, which was suggested by the industry players.The third part of this dissertation discusses the legal barricadeencountered in the application of VAM in China, such as legal issues on theapproval of foreign PE investment, the impact VAM has on IPO, anddiscusses the cause and legal consequences of these barricades.In its last part, the attempt is made to seek a risk prevention mechanismfor the application of VAM, including the potential conflict of law and otherissues at the operational level.