Research On The Contract With Moral Hazrad And Information Screening

Double-sided moral hazard and adverse selection cause complex principal-agent problem in the private equity investment,which are critical factors.First,this paper originally establishes a principal-agent model with double-sided moral hazard and adverse selection to explore the optimal contract(including the equity division contract & valuation adjustment mechanism).Second,conducting empirical study to demonstrate the theoretical results.In theoretical aspect,investors can judge the enterprises' types by valuation adjustment mechanism but not equity division contract,which is helpful to solve the adverse selection problem.If the valuation adjustment mechanism is triggered,investors can adjust their efforts according to the enterprise's specific type.At the same time,the different forms of valuation adjustment mechanism also shows the fact: the high-quality enterprise tends to relinquish less ownership but give more fixed return(cash)to the investor as compensation in order to obtain the financing;the low-quality enterprise is willing to relinquish more ownership but give less fixed return(cash)to the investor for financing.In empirical aspect,considering the specific content of valuation adjustment mechanism is difficult to obtain,but the information of equity division contract is relatively easy to fetch,so this paper just conducts empirical study on the relationship between the equity division and the enterprise's specific type.The result shows that the equity division is not related to the enterprise's specific type,namely the equity division contract cannot identify the enterprise's specific type effectively.