Chinese Listed Companies Issuing New Shares Research

SPO (Seasoned Public Offering) has become the main financing source of listed company since 1998, which enables the successful development of stock market in China, improves financing efficiency, and prompts the further development of stock issuing market. Another way of financing for listed company is RO (Rights Offering) , which violates the law of supply and demand in market, and hurts the automatic equilibrium of supply and demand. Since market price is not based on supply and demand, the efficiency of financing cannot be optimized. In fully developed stock market, fund raised with using RO is only a small proportion. SPO is actually the main method in financing for listed company. If there抯 no much difference between stock price and its value, SPO can increases the net asset value per share and the flexibility in case of risk. Same as other financing arrangements, SPO is supposed to take account of both efficiency and fairness. The goal of SPO are providing funding to listed company, optimizing their assets and financial structure, protecting the. benefit of all investors, stabilizing the price in secondary market. The key point here is how to set the issuing price rationally. A rational issuing price would not only decide the amount of funding that listed company would get, but also determine the distribution systems of different share holders. A well-balanced distribution system guarantees the success of SPO and principle of fairness. The main benefit dispute comes from the difference of subscription cost between original and new shareholders. The problem would only be solved while issuing price is very close to market price (Small Discount Pricing). This kind of pricing strategy can fully reflect the true value of listed company, maximize the amount of funding, optimizing the efficiency of financing. Thus, it becomes the critical issue in balancing the benefit between different shareholders and listed companies. The prerequisite of this pricing strategy is that the market price of the stock is very close to 憇 intrinsic value; otherwise th~e risk possibility would be highly increased. But the market price and intrinsic price are generally Mnidentical in stock market of China at present, which brings new challenges to investment banks, and improves their quality of service as well. The goal of investment bank is to make the intrinsic value of issuing company to be determined, accepted, and realized in three dstinct stages. The investment bank finds the potential intrinsic value of issuing company through marketing and assesses the value with appropriated assessing models at the first stage. At the second stage, the investment bank must make the intrinsic value be publicly accepted. The investment bank and the issuing company should try to make the investors fully informed and maintain a well communication system, which would help the formalization of rational market price. At the stage of realizing, the investment bank is expected to customize issuing plans for different clients according tQ their unique demand and the specific market situation. Investment bank usually chooses Small Discount Pricing even if the market price is different than the intrinsic price. However, because of undetermined price in secondary market, even using issuing window cannot offset t...