Analysis On The Financing Of Chinese Internet Companies Based On Case Study

Although extensive and thorough research and discussion about corporatefinancing have been conducted theoretically and practically, for the emerging Internetcompanies, especially companies in China, there are few literature about financing.On the other hand, the Internet is increasingly changing our work and life, and it is theInternet companies promoting the rapid development of the Internet technology andbusiness that lead to these changes. Referring to the classification of the Internetbehavior by CNNIC(China Internet Network Information Center), this article choosesfour typical Chinese Internet companies-Baidu(established in2000),Dangdang(established in1999), Tencent(established in1998) andJingdong(established in2004) and analyzes their list financing conditions. These fourtypical Internet companies basically cover the typical industries in the China Internetand overlap the period before and after the Internet bubble, therefore, in terms of timenodes, the four companies chosen are relatively representative.Through the analysis of these four typical Internet companies in China, i.e. Baidu,Dangdang, Tencent and Jingdong, it can be found that being listed is the majorfinancing channel for Chinese Internet companies. The choice of being listed as thefinancing tool is determined by the exit mechanism of PE and VC and the benefitmaximization.On capital structure, these four typical Internet companies are all mainly investedor controlled by foreign capital, because the domestic PE and VC were not matureduring the rapid development period of China Internet. As to the choices of listinglocation, these four companies all chose to be listed abroad: Baidu, Dangdang andJingdong chose to be listed in the US and Tencent is being listed in HongKong. Thereason why they did not chose to be listed in China has something to do with thelisting system, profitability requirements, financing scale, and capital flow and equitycontrol in domestic capital market. For corporate governance, Chinese Internetcompanies choose VIE (Variable Interest Entity) structure, bypassing relevant policiesand regulations to complete overseas listing. In fact, VIE is a grey zone in laws and the government takes acquiescent attitude towards it. Objectively VIE promote therapid development of Chinese Internet companies, however, in the steel industry thegovernment once did not accept the VIE, resulting that the Buddha Group in Hebeiterminated its listing. In corporate control, learning the lessons of8848e-commercewebsites, these four typical Chinese Internet websites use two different ways tocontrol the companies.Through the analysis of the listing financing cases of these four typical ChineseInternet companies, from individuality to generalization, this article summarize theproblems met in the listing financing of Chinese Internet companies and givessuggestions to company entrepreneurs and market regulators.For the entrepreneurs of Chinese Internet companies, they must pay attention tothe hold the company control power during financing process and the listing financinglocation chosen should be appropriate for the development of company businesses, forexample, if they choose overseas listing, special corporate governance structure suchas VIE, etc, should be taken into consideration. For the market regulators, they aresuggested to optimize the system of domestic capital market as soon as possible, solvethe VIE problem properly and innovate financing market reform in order to helpChinese Internet companies to expand financing channels.