The Effects Of Equity Carve-out On Operating Performance

Equity carve-out started late and developed slowly in China, but the establishment of GEM provide new opportunities for its development, and because of the high price-earnings ratio in GEM, equity carve-out is becoming a hit. In order to rationally explore its real effect on firm performance, we use the experience in Hong Kong market to provide policy recommendations for its future development in GEM.Based on defining the equity carve-out,we concludes that it has three basic properties restructuring, financing and IPO, which leads to three main effects that equity carve-out change the operating performance. To further test how equity carve-out change the operating performance and the degree of influence, we take 46 equity carve-outs in Hong Kong during 1999 and 2007 as samples,and use non-parametric tests and multiple regression tests for empirical analysis. The test shows that after equity carve-out the company has worse profitability, and the movement of earning capacity index is similar to the performance of IPO effect, which implies the existence of earnings management. The restructuring effect shows equity carve-out has a significant positive impact on corporate performance, while earnings management has a negative but not significantly effect on ROE. Finally, after summarizing the experience that A share companies split its subsidiaries to go public overseas, we analysis the internal and external factors that impact the further development of equity carve-out in GEM, as well as having srisk analysis and policy recommendations.