The Research On The Motivation And Economic Consequences Of The Compound Financial Instruments

On May 3,2018,Xiaomi Group,one of the largest "unicorns" in China,officially submitted an IPO application to the Hong Kong Stock Exchange.The estimated valuation can reach 100 billion US dollars,surpassing Baidu and Jingdong's upstart giants,explaining the business environment in the prospectus,almost a white paper for intelligent hardware manufacturing and Internet ecosystem.In addition to the analysis at the business level,Xiaomi also has a lot of attention in the company's financial data.After the release of the prospectus,“convertible and redeemable preferred stocks” became a hot topic of discussion.This paper selects the compound financing tool used by Xiaomi Group before the listing as a research case,and deeply analyzes the convertible redeemable preferred stocks of Chinese enterprises under the current institutional background.Combined with quantitative analysis and qualitative analysis,put forward practical and feasible suggestions,which have great practical significance for the stakeholders of the preferred stocks.The full text has seven chapters.The specific contents of each chapter are as follows:Firstly,we introduced the background and the meaning of this paper.Then expounded the content and methods we use.The next chapter is a literature review.Starting with the popular research on preferred stocks,it is extended to the preferred stock study with conversion rights and redemption rights.It mainly summarizes the literature from the two aspects of motivation and economic consequences,and broadens the thinking for the analysis of the following.The third chapter is the theoretical analysis and development status.It distinguishes the concept and classification of preferred stocks,compares various financing instruments in various aspects,and then summarizes the theoretical analysis of choosing preferred stock financing in the case where multiple financing methods coexist.Then it sorts out the two theoretical foundations for classifying preferred stocks,and finally analyzes the current development status of preferred stocks in China,and the challenges that convertible redeemable preferred stocks pose to today's corporate finance and accounting.The fourth chapter is the case background.We review the ins and outs of Xiaomi Group's issuance of convertible redeemable preferred stocks,and analyze the important terms and special rights of Xiaomi Group's distribution plan one by one.The fifth chapter is the motivation analysis for the distribution of convertible redeemable preferred stocks by Xiaomi Group.Analyze and elaborate from three aspects: solving the capital demand,pushing up the valuation of the company,and maintaining the control of the founder.The sixth chapter analyzes the economic consequences of the issuance of convertible redeemable preferred stocks by Xiaomi Group.It reviews from three aspects: accounting treatment,capital structure and financial performance.The seventh chapter is the conclusions,recommendations and prospects of the study.This chapter first refines and summarizes the main research results of the theoretical overview and case analysis.Secondly,it puts forward corresponding suggestions from three aspects: company level,market level and management level.Finally,it expounds the main shortcomings of this paper.Finally,we need to call for more attention and research to flock to such topics.The main contribution of the whole article is: First,combined with the case to study the preferred stock with conversion rights and redemption rights,and enriched the case study of China's preferred stocks.Second,select typical industries and typical companies to study the effects of their implementation.Thirdly,it explores the fundamental purpose of the company's use of the compound financing instrument,the advantages and disadvantages of the issue,summarizes its distribution experience and shortcomings,and puts forward suggestions and prospects.The research shortcomings of this paper are as follows: First,the current research on convertible redeemable preferred stocks is still an untapped field.The construction of the theoretical framework is only based on the existing literature under the topic of preferred stock,and no conversion rights and redemption rights are considered.In the analysis of its motivation and economic consequences,its comprehensive grasp is insufficient.Although the author attempts to comprehensively and systematically expound the research of such debt-mixed financing instruments,the extension and analysis of ideas are based on relatively fragmented features and lack of testing of large sample data,thus the mining of economic consequences may not be deep enough or perfect.Second,the Xiaomi Group's case has certain specificity and is a typical single case study.Quantitative analysis results also require an empirical test of a larger sample.At present,the Xiaomi Group has been listed for less than one year,and the long-term impact still needs time to be tested.