An Empirical Research On The Performance Of Reverse Takeover Of Chinese Main Board

Reverse takeover is an indirect way for going public instead of the direct way of IPO. Ancompany, willing to go public, first acquires the control of a listed company, then injectsassets into it using the way of assets replacement, assets purchase or assets transformation,and achieves the goals of assets securitization. This process calls reverse takeover.Most of Chinese companies listing on the foreign capital market use the way of reversetakeover. Accompanied with the problem of Chinese concepts stocks in the American capitalmarket, reverse takeover attract the public attention again. Due to limitation and the high costof direct going public, reverse takeover is an important method for going public. Reversetakeover is not the focus of the capital market recent years. But under the situation of Chinesecapital market system increasingly improving, reverse takeover is still an important way forgoing public, especially will playing an crucial role in the listed companies’ M&A.What are the differences between reverse takeover and IPO? Are there great differencesof their performance? There is little research focusing on these problems by Chinese scholars,especially empirical research. This paper will focus on the comparison of the performancebetween reverse takeover and IPO. It will analyze this problem from three perspective,survival analysis, market performance and operation performance.First, it will compare the reverse takeover and IPO companies’ long term performanceusing the analytical methods of Kaplan-Meier Analysis. It gets the conclusion that reversetakeover companies’ long term performance is poorer than IPOs’. Then it analyzes the stockprice performance, volatility and mobility to find the difference of market performancebetween reverse takeover and IPO. It finds the fact that reverse takeover companies’ stockprice performance is better than IPOs’, but more volatility and less mobility. Third, itcompares the operation performance between the two ways. And the conclusion is that theynot obvious difference early stage, but in the long run, reverse takeover companies’ operationperformance is deteriorating.Through the comprehensive analysis, it concludes that because of the opacity during theprocess of reverse takeover, the reverse takeover companies show worse long termperformance than the IPOs’. Although the stock price performance is better, the risk is higher, and it will converge with the IPOs in the long term.Accordance with the analysis above, we can find that reverse takeover companies are notsuitable targets for long-term investment. And the regulators should carry out some measuresto restrict the reverse takeover in order to keep the market fair and market improving.