Research On Making Up Deficiencies In *ST Companies

The Notice about Reinforcing Delisting Risk Warning of Companies with Risk of Stock Delisting released by Shanghai and Shenzhen Stock Exchanges in April 2003 strengthened delisting risk warning system;that is to say,the companies in two years' continuous loss-making will receive delisting risk warning with adding “*ST” symbol before stock abbreviation.According to relevant system stipulations,listed company will be suspended from listing if in continuous loss-making after receiving delisting risk warning.Over the past 20 years,most of the companies approaching to *ST successfully made up deficiencies and avoided the fate of suspending listing or delisting.This paper researches from the perspectives of method of making up deficiencies adopted by companies in continuous loss-making and performance after making up deficiencies;Firstly,this paper collects the annual report and media information of *ST companies in continuous loss-making in Shanghai and Shenzhen main board during 2012-2015;according to the functional characteristics of method of making up deficiencies on companies,this paper classifies the method of making up deficiencies into five categories(blood transfusion,blood selling,blood exchange transfusion,activating blood and blood making);later,by carrying out case research on representative *ST companies making up deficiencies,this paper analyzes the behavior of making up deficiencies and effect of case companies.The research shows that,most *ST companies making up deficiencies after continuous loss-making only start with current situation,which lack long-term strategic consideration.Meanwhile,different methods of making up deficiencies will generate different functions on company financial performance and stock price fluctuation after making up deficiencies.At last,according to the discoveries of case research,this paper explores the problems and deficiencies in delisting risk warning system in Shanghai and Shenzhen main board.On the one hand,Chinese delisting risk warning system fails to distinguish different industries,which may send the listed companies in better prosperity into delisting risk and disturb their normal business plan;on the other hand,Chinese delisting risk warning system in Shanghai and Shenzhen main board lacks follow-up survey after companies make up deficiencies,some listed companies whose operating conditions fail to be fundamentally improved can eliminate delisting risk through controlling profit;such system loophole directly leads to short-sighted behavior of making up deficiencies by *ST companies in continuous loss-making.For this reason,this paper believes that,the delisting risk warning system in Shanghai and Shenzhen main board shall set up different financial indexes according to company industrial characteristic,and judge whether to impose delisting risk warning on relevant companies combining with specific situation.Besides,delisting risk warning system needs to establish observation period for companies improving financial status and then judge to revoke delisting risk warning of relevant companies based on actual situation.The current delisting risk warning system is more like a burden to listed companies' progress;but only by designing more effective delisting risk warning system can change burden into power to protect listed companies as well as investors.