The Equity Carve-outs Of Listed Companies In China

The background of this paper is from the news of the China securities regulatory commission in April 2010, which proposed to allow listed companies to spin-off subsidiary to GEM(Growth Enterprises Market). Firstly, this paper conducted a comparative analysis of several concepts, such as divestitures, spin-off, and equity carve-out. It systematically combed the experienced stages of the methods of IPO in the Chinese stock market as its development since the 90s of last century, from the initial spin-off, to the whole to list, then to the listed companies to spin-off subsidiary to GEM which we talk now. This paper argues that the theoretical basis of spin-off is the theory of firm boundaries, and review the evolutionary process of this theory. Secondly, we seized upon the objective which would spin-off diversified listed company, doing an empirical analysis between its diversification and the company performances, that says there is a diversification discount phenomenon in China’s share market. According to the internal situation of diversified companies in our country and the changes of external environment, these companies need to find their optimum boundaries to match their own capacity, while the spin-off is one of the way to solve it. Third, as these companies spin-off, it can reduce the degree of asymmetric information, optimize the company’s governance structure and obtain new financing channels. Again, this paper systematically compared with the two methods of spin-off, namely, spin-off and equity carve-out, summarized the relevant policies in the US, Japan, Hong Kong and Taiwan, and made a policy recommendations which is consistent with the actual situation in China:The merger and the spin-off of listed companies, are the ways of reorganization methods of company, and the spin-off should not be specifically prohibited. At last, we believe that the way of spin-off is more suitable for Chinese shock market.