An Empirical Study On The Influence Of IPO Over-Financing On Eva In Companies Listed On Sme Board

In Chinese security market, the over-pricing in the primary market has led to an over-financed IPO and unguaranteed rights and interests for small and medium investors in the secondary market. To solve the problem, A-share market has launched four reforms in its IPO effort since May2009. The difficulty and focus is how to improve restraint mechanism for inquiry and subscription quotation so as to guide the pricing in the primary market to develop in a rational way. IPO over-financing in enterprises will probably exert great influence on their operation and performance. Based on previous research results, this paper introduces the term of performance evaluation method--Economic Value Added (EVA) from the perspective of shareholder-value-creation, and measures the impact of IPO over-financing on enterprises’ability to create value through analysis of the changes of EVA.In the first place, the paper gives an introduction to research background, theoretical basis, previous results, over-financing of SME board and the concept of EVA and answers why the paper has adopted EVA to study instead of many other performance evaluation methods, which has laid a solid foundation for further study in following parts.Following parts, as the core of this paper, mainly study the points as below:Firstly, taking Hepalink (stock code:002399)----a typical SME with a high rate of over-financing as an example, analyzes on a micro level that how IPO over-financing impacts enterprises in aspects such as EVA, profitability, operation capacity and so on. The author finds that over-financing of a huge sum does not only causes a sharp slump of EVA, but also a decline in Hepalink’s profitability, operation capacity and development ability which are exactly the decisive factors in EVA. In spite of enhanced solvency by over-financing, the under-use of financial leverage and the rising cost of equity capital, another two unfavorable factors in EVA development, have eventually resulted in a declined EVA in enterprises. IPO over-financing doesn’t create value for shareholders. On the contrary, it becomes a powerful weapon to destroy the value of shareholders.Secondly, the paper takes324sample companies listed on SME board during2009to2012as objects to study whether it is a universal phenomenon in the case of Hepalink. From a macro point of the large sample, the author has conducted a descriptive statistical analysis of sample companies’ EVA and a correlation and regression analysis between over-financing ratio and variations in EVA return rate before and after IPO. It finds that the more enterprises over-finance, the sharper decrease the EVA will show and EVA will drop1.101%with every1%increase in over-financing ratio.In the end, the paper further explores the reason why over-financing will cause a decline in EVA. Based on the above research on Hepalink, the author holds that IPO over-financing will probably have an effect on enterprises’ profitability, operation capacity, solvency and development ability, the four of which, however, decides the level of EVA to some extent. To prove that point, the paper further studies the relationship between them.According to the results of regression analysis:firstly, IPO over-financing does reduce enterprises’profitability, operation capacity and finally causes decline in EVA; secondly, an enhanced solvency through over-financing doesn’t help, for equity capital costs more than debt capital and according to capital asset pricing model (CAPM), rise in equity capital will surely drop the EVA level; thirdly, IPO over-financing has no significant impact on the short-term development of enterprises.