The Path Selection And The Effect Of Spin Off Listing

In 2013, A Hong Kong listed company called Digital China spun off its subsidiary company Digital China Information and landed A-share market successfully by backdoor listing with the shell corporation Special Treatment TaiGuang. Therefore, Digital China became the first H-share listed company which landed A-share through spin-off listing. As Digital China itself was also spun off by Lenovo group and landed H-share successfully in 2001, this spin-off cases of these relevant groups provide a unique and realistic point of view for the research of spin-off listing which is considered to be a way of tighter capital operation.This paper firstly expounds the relevant literature and the theoretical basis about spin-off listing and its path selection. Secondly, we sort out the policies and regulations about spin-off listing in A-share and H-share markets, compare the advantages and disadvantages of IPO and spin-off listing as well as the advantages and disadvantages of different share markets, and define the path of spin-off listing. Finally, this article studies the cases of spin-off listing of these Lenovo related groups. In the case study, with the help of the related theories, we make systematic analyses about these two case by considering series of questions such as "Why listed companies split?" " How to split?" "What’s the consequence about the balance status of the subsidiary caused by the splitting?". The article analyzes the motivation of the two spin-off listing from three perspectives, financial drive, value release drive, and management drive, to explain why the listed companies split. We think that the spin-off case of Lenove is drove by the management factor, and the spin-off case of Digital China is affected by all the three drives. To answer how to split, the article compares the path selections of the two cases, and makes detailed analyses to the reason of the path selections. To find out the consequence about the balance status of the subsidiary caused by the splitting, the article first design an effect evaluating system with the research of value effect of spin-off listing and the knowledge of financial economics, analyzes the influence to the subsidiary from the perspectives of the safety, the liquidity, and the profitability of assets. Then, we compare the change of related indexes of the subsidiary with a similar company in the same industry. We get the conclusion that this spin-off listing of Lenove has not brought significant improvement to Digital China, and this split behavior is just work for the successor plan without considering the balance status of the subsidiary. However, after Digital China split the subsidiary Digital China Information, Digital China Information’s value was revalued, and the safety, liquidity, and profitability of assets were improved. Also, Digital China Information’s financial conditions are improved greatly and the capital problem that limited its development was solved by raising funds through the capital market. These make Digital China Information the leader in information service industry in our country. The research proves that the spin-off listing of Digital China is advantageous for its subsidiary, as it satisfied the needs for both the financial status and the development of Digital China Information. It shows that only if a company choose a proper time and path for spin-off listing, can it bring great improvement to the value of its subsidiary.