The Performance Analysis Of Company That Finances Through Private Placement In New Third Board Market

Small and medium-sized enterprises (SEMs), which are the important carrier for mass entrepreneurship and innovation in China, play an indispensable role in increasing employment, promoting the transition of economic structure and improving technology innovation. It is noted the development of SEMs requires sufficient funds. However, due to short establish time and high business volatility, the majority of SEMs has a hard time getting loan from traditional credit market. Moreover, it is also difficult for these companies to obtain sufficient financial support from exchange market as both the entry threshold and the cost of IPO are relatively high in Growth Enterprises Market (GEM) board as well as Small and Medium Enterprises (SEM) board. Financing difficulty has been a significant problem that constrains further development of small and medium-sized firms. In recent years, Chinese government places emphasis on establishing Multiple-Layer Capital Market, and in this context New Third Board Market has nourished many growing and innovative SEMs with inclusive attitude and creative mechanism. By the end of 2015, the number of SEMs in New Third Board Market experienced a blowout increase to 5129, up 225% from last year. New Third Board Market helps SEMs improve corporate governance, bring wealth effect to the shareholder and increase companies’popularity. More importantly. New Three Board Market provides SEMs with a flexible and convenient financing channel and offers a solution to the financing problem of SEMs.At present, firms that listed in New Third Market Board mainly rely on private placement to raise capital. According to statistics in 2015, the number of fund raising through private placement was 2565, a seven times increase from last year. At the same time, the total amount of capital raised in this way exceeded hundreds of billion yuan in 2015. The rising scale of private placement in New Third Board Market implies that as the market continues to mature, investors start to grow more confident and pay more attention to the market. The advantage of equity financing in this market has been preliminarily exposed. In this context, it is necessary to discuss whether private placement can yield a positive effect on the performance of companies that listed in New Third Board Market.There have been voluminous studies on the impact of private placement on public company and most of these studies applied Empirical Analysis method to examine the impact. This dissertation makes an attempt to combine Empirical Analysis with Case Analysis to conduct multiple-angles analysis to examine the influence of private placement on enterprise performance. To conduct Empirical Analysis, this study will try to construct Multiple Liner Regression model to analyse the effect of private placement on capitalization of firms from New Third Board Market. When it comes to Case Analysis, this study chooses Fundamental Films Inc., an outstanding listed company in New Third Board Market, as analytic target and examines the impact of private placement on this company from both financial and non-financial perspectives. The purpose of performing a case analysis on a specific company is to verify the conclusion from empirical analysis and to conduct deeper analysis on how can firms improve business performance through private placement. The ultimate goals of this study are to set example for other firms in this industry and to promote the development of emerging markets.There are five sections in this dissertation and the context of each section is illustrated as follows:The First Section is Exordium. This section will summarize domestic and foreign literature and indicate the innovation and weakness of these papers after illustrating the background and significance of this study.The Second Section will describe the status and problems of private placement in New Third Board Market. There are three parts in this section. Firstly, the basic information of New Third Board Market will be illustrated by charts and statistics, which can intuitively reflect the development of the market. Next, after summarizing the characteristics of New Third Board Market, this section will describe the status of private placement in New Third Board Market from the perspective of scale, industry distribution and area distribution. Moreover, when discovering private placement in New Third Board Market does not function fully, this section will try to analyse the problems that may restrict the development of this market in the future.In the Third Section, the performance of firms that finance through private placement will be analysed empirically. To start with, as New Third Board Market has wide industry distribution, this study chooses growing and innovative TMT industry as regression sample. Moreover, Return of Equity (ROE) has been chosen as dependent variable to measure the performance of the company while Private Placement (PP) as independent variable. To ensure the accuracy of regression, Net Profit Growth Rate (NPGR), Total Liability Growth Rate (TLGR) and Earning per Share (EPS) have been added to the model as controlled variables. The regression results show that private placement in New Third Board Market is negatively correlated with ROE. This can be explained by the fact that as private placement will immediately increase net profit for the term while capital raised through private placement cannot generate considerable benefits in the same period. Therefore, when net profit of the company remains unchanged or grows less than net capital of the company in the same period, ROE is likely to decline.Case Analysis will be conducted in the Fourth Section. This section is the core of the dissertation and it is comprised of two parts. The first part will analyse the industry profile and operation condition of Fundamental Films Inc. and it is found that while Fundamental Films Inc. consolidate and extend its business chain, it is also necessary for the company to finance through New Third Board Market. Record of private placement of the company is listed at the end of this part.The second part made an attempt to analyse the performance of private placement of Fundamental Films Inc. from both financial and non-financial perspective. Given the interval between each private placement, this part will mainly focus on the performance of the company in 2013, when the company made its first private placement. In order to examine the impact of private placement on the company more precisely, this part will examine the influence on the company by two different stages. The first stage focuses on the current period when the company make its private placement. It is found in this stage that the ROE of the firm decline slightly, which validates the conclusion in empirical analysis. The business performance of the company in a year after the first private placement (namely 2014) will be analysed in the second stage. As found in this stage, Fundamental Films Inc. attained rapid development after the company made full use of the capital raised through private placement to expand its business and to conduct strategy transition. The profitability, operation capability and growth ability as well as business performance of the company have been improved to great extend in 2014. From the angle of non-financial index, the first private placement allowed Fundamental Films Inc. to optimize its internal governance, accelerate its business expansion and attract strategic investor, which help promote the development of the company.Based on the discussion above, the Fifth Section will draw conclusion and make suggestions. There are also two parts in this section. The first part is to make conclusion according to the empirical analysis and case analysis and it is generally believed that private placement in New Third Board Market will do benefit to the business performance of the company. The other part of this section tries to come up with solutions to potential problems in private placement from the perspectives of the company and the market. Accordingly, this study hopes to promote the development of New Third Board Market to provide better financing services to SEMs and simulate the development and transformation of SEMs.The innovation of this dissertation is mainly reflected in the following areas:The theme of this dissertation is new and unique. After conducting a reasonable review on relevant domestic literature, this study found that while there are voluminous studies focus on performance of firms that made private placement, there are few studies on private placement in New Third Board Market. As the New Third Board Market is expanding rapidly and financing through private placement becomes more popular, it is of significant necessity to study whether firms in New Third Board Market can improve their performance by financing through private placement.This study applies both empirical analysis and case analysis to examine the influence of private placement in New Third Board Market. In this way, the conclusion is precise and convincing.When analysing restriction factors on the development of private placement market, this study offers solutions from the perspectives of the company and the market, which help promote the development of private placement in New Third Board Market and improve the performance of the firm.On the other hand, there are limitations in the analysis component. First of all, as the mechanism of exchange in New Third Board Market is special, the stock price of companies in the market cannot be used to study the market performance. Therefore, this study can only analyse the performance of the company. In another word, the analysis is uncomprehensive. Moreover, the empirical analysis focuses on the impact of private placement on the performance of a company in current period and does not covers the long term effect of private placement. What is more, as Fundamental Films Inc. only made its first private placement in the recent year, there are insufficient data to conduct long term analysis on the impact of private placement on the company. In view of my limited knowledge, it is inevitable to make mistakes in the analysis component. I am looking forward to your valuable comments and suggestions.