The Effects Of Equity Carve-outs On Corporate Performance

With the rapid development of economy, China’s capital market is undergoing a development from immaturity to maturity. In order to further increase the value of enterprises, all enterprises are actively seeking effective way to increase efficiency. In this progress, as an important way to expand, acquisition has been the protagonist in this arena. However, Equity Carve-outs, which has been used as a mature way for enterprise reorganization in foreign countries, has attracted no attention until2000the Tong Ren Tang successful apart appear on the capital marketAs the regression from diversified to specialization, some enterprises regard Equity Carve-outs as a useful attempt to maximizing the value and put it into practice. Due to the unsound of China’s capital market, domestic main board market imposed strict limits for Equity Carve-outs. Under this condition, most of the domestic enterprises have been selected for overseas Equity Carve-outs mode. However, there’s some doubt about its suitability for Chinese Enterprises, in the condition of China’s weak efficient capital market, does Equity Carve-outs can really bring value to enterprises and shareholders? These questions need us discuss deeply, at the same time, it also bring more value on the research of corporation performance of Equity Carve-outs.Following the open of Growth Enterprise Market in2009and the China Securities Regulatory Commission permit domestic listed company splits constituent company to the GEM Listing in2010April, more and more companies especially high-technology companies will have more choice. While Conba spin-off Jolly pharmaceutical as the first spin-off case with the opening policy, it is worthy of study and use for reference. The dissertation which study the impact of Equity Carve-outs on corporate performance hope to provide something for further research of Equity Carve-outs in the future. The dissertation mostly adopts the methods of normal analysis and case studies analysis. Firstly, it analyses the concept, hypothesis, model of the Equity Carve-outs, analyses the effect of Equity Carve-outs on enterprise and capital market, combining with the development of domestic Equity Carve-outs at the same time, analyses the new entry conditions of Equity Carve-outs. Finally, it introduces the case of Conba spin-off Jolly pharmaceutical.It analyses the background of spin-off companies,the reason of spin-off, the financial index of the listed company before and after the Equity Carve-outs from the aspects of solvency ability, profit ability, operating ability, growth ability and cash flow condition. At the same time, it analyses the change of share price of the parent-subsidiary company before and after the Equity Carve-outs to study the impact of Equity Carve-outs on corporate performance. At last, it make some suggestions to perfect the Equity Carve-outs.The dissertation consists of six chapters, and it is organized as follows:The first chapter is introduction, it focuses on the research background, research ideas and methods as well as the expected contributions and shortcomings. With the increasing development of market mechanism, Enterprises gradually tend to be specialized, the reorganization way of Equity Carve-outs has been attracted more and more attention.The second chapter is literature review, Equity Carve-outs is used quite mature in foreign countries, the relevant theoretical research and empirical research results are also very rich. But the system of China’s capital market is not perfect, and the case of domestic Equity Carve-outs is very few, systemic research conclusion has not been formed. Most of research is around the case of Tong Ren Tang and other cases of Equity Carve-outs are seldom involved.The third part is basic theory summary, it mainly introduces the core concepts, theoretic foundation, spin-off model and the effect of Equity Carve-outs. Firstly combining the hypotheses, which are financing strategy, information asymmetry, incentive, management efficiency, and the business characteristics of the parent-subsidiary company, it divide the Equity Carve-outs into PE incubator model, similar pattern mode and differences model. Meanwhile, it analyzes the effect of Equity Carve-outs on enterprise and capital market.The fourth chapter is to analyse the development status condition of domestic Equity Carve-outs. We consider domestic Equity Carve-outs include two stages: oversea Equity Carve-outs and GEM Equity Carve-outs. The dissertation analyses the condition and related policies of Equity Carve-outs in different stages.The fifth part is case study, it select the case of Conba spin-off jolly pharmaceutical, from company backgrounds, the motivation and compliance research of Equity Carve-outs to compare the development status of parent company before and after Equity Carve-outs, then analyses the effects of parent-subsidiary corporation performance based on financial index and capital market, in the part of financial index analysis, This paper selects the data from2007to the third quarter of2012, and illustrates the effects of Equity Carve-outs through analysing solvency ability, profit ability, operating ability, growth ability and cash flow condition. In the part of capital market study, it focuses on the share price and compares the rate of returns of the companies with the rate of returns of CSI300. Make the corresponding judgment from the reaction on the secondary market.The last chapter gives research summary and enlightenment. Combining the relevant theory of performance evaluation of Equity Carve-outs, it draws the corresponding conclusions and give some suggestion to perfect the Equity Carve-outs.In this research we consider that Equity Carve-outs has less direct impact on parent company while has more effect on subsidiary company. But does it always has positive effects or not, that depends on the development of the company. On the capital market, investors’reaction of the Equity Carve-outs is not active, it caused small wave motion of parent company’s share price in several key time points, but it lacked continuity. Investors pay more attention to further development of the parent-subsidiary company.The main contributions of the dissertation is that it choose and analyses the case of CONBA spin-off Jolly pharmaceutical through combining the actual situation of China’s capital market and related policies. As a typical case of domestic A share listing corporation spin-off subsidiary onto the GEM listing, it can compare the parent-subsidiary company’s performance before and after spin-off with the industry average performance which other cases can’t accomplish. Because of the limit of the case data, the impact on Equity Carve-outs to the parent and subsidiary company performance is not sufficient so that we need to follow up in the future. The correlation theory awaits deep study, the suggestions provided are also limited which needs study further in the future.