Case Analysis Of Compulsory Delisting Of Zhonghong Shares

Since the establishment of the Shanghai Stock Exchange and Shenzhen Stock Exchange in 1990,China's capital market has undergone almost 30 years of development.However,China's capital market is still criticized as an unhealthy capital market,so compared with mature capital markets in developed countries in Europe and the United States,we still have a lot of way to go.The immaturity of China's capital market can be viewed from both internal and external perspectives.From an internal perspective,it includes the T + 1 trading system,the daily limit system,the approval-listing system,and the inefficient delisting system.From an external perspective,there are many reasons why retail investors in China's capital market have led to the prevalence of speculation and many poorly performing companies that do not have high growth can remain in the market.However,from the perspective of reforms in recent years,the rules and regulations of China's capital market are gradually becoming standardized and mature.For example,the establishment of the Science and Technology Innovation Board in2019 and a pilot registration system based on this,this is a signal that the regulators have relaxed the company's listing conditions.In China's capital market,one of the reasons why many listed companies have difficulty in delisting is the scarcity of market shell resources.The prevalence of speculation on shell resources,coupled with the impact of delisting by listed companies,is huge.Companies can avoid delisting through earnings management,debt restructuring,etc.,and the local government will help to prevent it from delisting.In this context,it is very important to have a perfect delisting system and an efficient implementation of the delisting.Because only low-quality companies can continuously withdraw from the capital market,the proportion of high-quality companies in the entire capital market will continue to increase,so that the role of the capital market in optimizing resource allocation can be more effectively exerted.The delisting mechanism is an important system for improving the quality of listed companies.One of its important functions is to improve the efficiency of resource allocation in the capital market.The "Company Law" promulgated in China as early as December 1993 has formulated some situations in line with the delisting of listed companies.This is the first time that the delisting issue has received public attention,and it has been continuously revised andrevised in the following two decades.However,China's capital market has been immature and the operability of related systems has not been strong,so it has not caused any impact.Eventually led to the phenomenon of listed companies entering and leaving the country in the capital market in our country.This phenomenon gave the outside world the illusion that China's capital market will not delist.However,with the three reforms of the delisting system in 2012,2014 and 2018,the issue of delisting has received increasing attention from the public.At the same time,the CSRC also clarified the status of the main responsibility of the exchange in the implementation of delisting.For companies that meet the delisting conditions,the exchange must resolutely implement the delisting and maintain the seriousness and authority of China's capital market.Zhonghong Co.,Ltd.,as the first listed company that was forced to delist because its share price was lower than its face value after the implementation of the delisting rules in 2012,has received much attention from the capital market and the case itself is very representative.There are few specific case studies on delisting,and the analysis of the reasons for delisting can play a strong warning and reference to other private enterprises and even the entire capital market.Therefore,this article selects Zhonghong Co.,Ltd.as the research object,and uses the literature analysis method and case study method to analyze the reasons for its forced delisting.The second chapter of this article first analyzes and integrates the relevant theories and related domestic and foreign references that may be involved in this case.The third chapter introduces the general situation of Zhonghong shares,including business overview,development strategy and various financial indicators,and briefly describes its delisting process and efforts to avoid delisting.The fourth chapter analyzes the reasons for the delisting of Zhonghong from the internal and external perspectives.Internal causes mainly include the hype of the concept of“high transfers”,the outbreak of debt risks caused by radical foreign investment,violations of information disclosure,and actual controllers overriding management and causing internal control to fail.The external reasons are mainly the restrictions on the development of the real estate industry by national policies,the slowdown of domestic economic growth,and the delay or lack of relevant regulations.Finally,the conclusions obtained through the analysis,combined with the characteristics of Zhonghong before the delisting,put forward suggestions for investors to establish investment values,reject speculative investment,and attach importance to internal control of the company;for other private enterprises,a sound Enterprise developmentstrategies and the establishment of effective internal control systems are useful suggestions.At the same time,in order to improve China's capital market,the supervisory authorities have put forward suggestions on improving China's delisting mechanism and strengthening the supervision of internal control information disclosure.