Private equity investments are heating up in China, but there still exists uncertainties. China is continuously undergoing corporate reform and trying to find ways for previously state owned enterprises (SOEs) to become globally competitive. As governance structures are still weak and unique in Chinese companies, private equity firms are also taking a unique approach to its investments in China.

In the seminar, I compare how private equity firms’ objectives and roles in operating in China are vastly different from their operations in Western countries. The core objective of private equity firms is to gain a return on their investment, which is ultimately to buy a whole, or part of, a company at a low price and sell at a higher price in the future. It is well known that in Western countries, private equity is invested in companies that are undervalued due to governance problems. It could be said that Chinese companies are also undervalued due to their governance problems.

However, the source of the governance problem is different between Chinese companies and Western companies. Most Western companies’ governance problems arise due to agency problems where there is a conflict of interest between managers and shareholders, where managers may engage in opportunistic and/or unethical behavior. In China, governance problems arise mostly due to inefficiencies in accounting practices and not being able to gain trust from the global market due to gaps in expectations of governance practices, thus leading to undervaluation and low global competitive advantage. Furthermore, Chinese firms may not have the managerial competencies and resources necessary to grow into a global company.

Therefore, the reason private equity firms invest in target companies and how they solve the governance and resource problem to increase the value of the target companies will likely vary between Chinese and Western companies. I will discuss the case of a private equity firm named Honey Capital acquiring a local state-owned glass company named Jiangsu Glass to deeply examine how private equity firms operate in China.

Further, I discuss the uncertainties arising in the China market due to declining export growth and too much private equity money chasing too few deals. I finish the session by further looking into the debate on whether private equity firms actually create value for the target companies.

Dr. Young Un Kim joined Nottingham University Business School as an assistant professor of Strategy in March 2015. Previously, she was an assistant professor at UNSW Australia since 2012 where she taught Masters level and MBA level students. She received a Bachelors in Business from Kyunghee University, a Masters in Electronic Commerce from Carnegie Mellon University, and a PhD degree in Strategy and Entrepreneurship from the University of North Carolina at Chapel Hill. Her research explores the intersection of Strategic Management and Corporate Governance. Current research projects focus on examining Boards of Directors role as strategic advisors and how national institutions affect how corporate boards behave. She also has a unique interest in comparing how governance structures vary across countries.