The Effects Of IPO Suspensions On ST Stock Premium

This paper studies the impact of the initial public offering(IPO)suspension policy on the ST stock premium in the China A-Share market.During the IPO suspension period,companies with strong financing needs generally adopt ‘backdoor listing' approach and get listed by acquiring a ‘Shell Company',and ST stocks have become a popular choice for the shell company due to their low fundamental value.The change in the value of the ST stock risk premium before and after the suspension of the IPO proxies the change in the financing costs of the companies using the backdoor listing,and reflects the impact of the IPO suspension on the company's financing costs.This paper selects 619 ST stocks from China's A-share market from 1998 to 2017 to test whether there is ST stock premium in the Shanghai and Shenzhen stock markets during the six IPO suspension periods,and to study the dynamic changes of ST stock premium and factors that affect the change in the ST stock premium.This paper finds that the ST stock premium of Shanghai and Shenzhen stocks exists during the period of six IPO suspensions from 1998 to 2017,and the premium does not decrease as the IPO requirement relaxed over time.We also find that ST premium is different during different IPO suspension periods,in particular,the ST stock premium is the most significant in Shanghai exchange market during the suspension of the IPO in 2004 and the ST stock premium in the Shanghai and Shenzhen exchange markets during the IPO suspension in 2012.This paper further finds that the smaller is the company,and the higher is the proportion of circulating shares,the more likely the ST company is to be the shell company.Furthermore,the ST company that is more likely to be the shell company has higher ST stock premium.