Research On The Motivations And Effects Of The Secondary Equity Carve-outs And Listing Of Tong Ren Tang

Our country's securities market began to develop rapidly since China's reform and opening up.As a new way of asset restructuring,equity carve-out has gradually become an important way for enterprises to eliminate value dissipation caused by diversified management over mergers and acquisitions,and an important way to conduct investment and financing strategies,enhance parent company's stock price and implement management incentives as well.Tong Ren tang is China's first enterprise to conduct equity carve-out and Tong Ren tang technologies Company Limited was listed after its equity carve-out in 2001.Besides,Beijing Tong Ren Tang Chinese Medicine Company Limited was listed in 2013 after its equity carve-out in 2004,which has made Tong Ren tang the first case in China to split and listing twice,however,its motivation has also been questioned by the public.This paper studies the secondary equity carve-out of TRT.We looked at TRT's real motivations of the spin-off and list based on three hypothesis,the "diversified value dissipation" hypothesis,"information asymmetry" hypothesis and "investment and financing strategy" hypothesis.We also study the possible transfer of interest in three aspects,including the use of the funds raised by TRTCM,the related transactions and the profit distribution among these three bodies.And we come to the conclusion that the reason why TRT conduct equity carve-out is that it aims to expand aboard.In order to study the effect of this equity carve-out on TRT,we evaluated the financial effects from the debt paying ability indexes,profitability indexes,operating capability indexes and growth capability indexes,and evaluated the nonfinancial effects from TRT's position in the field,brand awareness and human resources.We find that the secondary equity carve-out of TRT is favor for the strengthen of solvency,but the profitability and operational capacity are weakened because of the queries,and its growth ability is also crippled.Nevertheless,the industry status and brand recognition and work quality of TRT is promoted.Finally,we put forward three suggestions to the problems in this case,that are the insufficiency of information disclosure,unfair connected transactions and the decline of income-generating ability in parent company.We suggest that the slit proportion should be thought over before equity carve-out,the independency of subsidiaries should be ensured;companies are supposed to strengthen the awareness of disclosing information and be placed more market discipline.The legislation should specify the scope of the information disclosure about related transactions to standard the market economic order.