Case Study On China Railway Construction Split Railway Construction Heavy Industry

Since the 1960 s,with the rapid development of the economy,many companies have been expanding their business territories by mergers and acquisitions in order to capture the capital market first,which allows them to diversify their business by absorbing large amounts of capital and expanding their scale.However,as diversification continues,the negative synergistic benefits are becoming more and more obvious,such as the difficulty in taking care of all the quality sections of the subsidiaries due to too many businesses,the inefficiency of management due to the limited expertise of the management,and the increase of management costs due to the commissioning agency.Therefore,in order to solve the damage caused by negative synergies,managers turn to shrinking asset restructuring.As one of the most representative shrinkage asset restructuring methods,the spin-off has been developed and matured in Western markets for a long time.However,due to the late start of domestic research on spin-offs,the regulatory policy and system have not been perfected,and the spin-offs are operated jointly by the parent and subsidiary companies,which can easily become a means for management to transfer interests and thus harm investors’ interests,the domestic attitude towards spin-offs was initially "discouraged" and "strictly controlled".Until 2019,when China promulgated the "Pilot Regulations on Domestic Listing of Subsidiaries of Listed Companies",the attitude of CSRC changed to "explicitly allow" and also relaxed the threshold of corporate spin-offs,and the introduction of the Science and Technology Innovation Board has pushed the fever of spin-offs to the highest level.The introduction of the Science and Technology Innovation Board has pushed the reorganization method of spin-off to the highest point.Therefore,this thesis will analyze the motivation of the spin-off of Tiejian Heavy Industries from China Railway Construction,the path of the spin-off and the economic performance after the listing.Based on the event study method,this thesis introduces and analyzes the case of Tiejian Heavy Industry’s spin-off by reviewing domestic and international literature on spin-off and domestic construction machinery related information,combining market value management theory,information asymmetry theory,core strategy theory and principal-agent theory.Through the study,it is found that the motivation of China Railway Construction to spin off Tiejian Heavy Industry is basically the following:(1)to reduce information asymmetry by spinning off the high quality section so as to obtain the revaluation of the parent and subsidiary and obtain the excess return.(2)To solve the problem of financial needs of Tiejian Heavy Industry during the period of research and development to ease the pressure of corporate financing.(3)To realize the business focus of Tiejian Heavy Industry,through the spin-off,the subsidiary will specialize in high-end equipment field,while the parent company will focus on basic machinery manufacturing business.(4)Promote the implementation of management incentive plan of Tiejian Heavy Industry through the spin-off,and reduce the cost of principal and agent brought by the parent company’s control over the subsidiary.In addition,this thesis analyzes the economic consequences before and after the spin-off from the perspective of market reaction,business performance and internal governance by selecting financial and non-financial indicators for the above reasons:(1)The market reaction is good three days before the announcement date of the spin-off,and then decreases but finally tends to be balanced.(2)Through the spin-off,Tiejian Heavy Industry raised a large amount of capital and invested in the research and development of intelligent equipment,which enhanced the research and development capability,significantly increased the business expertise,and greatly improved the operating income and profitability of the parent and subsidiary.(3)Tiejian Heavy Industry’s management governance level has been improved after the independent listing,the cost of sales and management expense ratio has been reduced,the operating income has increased significantly while reducing unnecessary costs,but there is still room for improvement in asset utilization level and operating capacity.Finally,we conclude the thesis with the following recommendations: in the face of the increasingly hot spin-off market,the regulator should strengthen the supervision of inter-company information disclosure to prevent the transfer of benefits in the dark.Due to the specificity of their business,central enterprises should reasonably avoid related-party transactions before planning a spin-off.The capital market needs to optimize the current spin-off system to meet the expansion needs of high-quality enterprises.