Motivation And Performance Analysis Of Regression Of Chinese Concept Stocks

The formation of Chinese concept stocks can be traced back to the end of the last century.The rise of the Internet and other emerging industries has brought about the fund demand of relevant small-sized and medium-sized enterprises,but due to the poor performance and the unknown development prospects of these enterprises at the early stage of establishment,financing in the domestic market is difficult.So a large number of companies went overseas.However,the road of overseas financing is not always smooth.In just a few years,Chinese concept stocks experienced from rapid development to popularity,followed by frequent scandals and trust crisis,and fell into the privatization wave in the end.But since 2018,China securities regulatory commission(CSRC)has issued several opinions on the pilot program for innovative enterprises to issue shares or depositary receipts in China,providing a new channel for Chinese concept stocks to raise funds in China.In the same year,the SEC allowed eligible companies to list "directly" on the New York stock exchange,while Hong Kong Exchanges and Clearing Limited allowed companies with "one share,different rights" structures and unprofitable biotech companies to list in Hong Kong.A series of actions make the regression trend of Chinese concept stock not quite clear.Firstly,this paper describes the general situation of the regression of Chinese concept stock,which is mainly divided into four parts: the current situation,motivation of privatization,dismantling of the VIE structure and path of the regression of Chinese concept stock.Among them,by combing the literature,we find that the main reasons for the regression of Chinese concept stock are undervaluation,strategic adjustment and enterprise transformation,circumvention of supervision and policy support.Then it introduces the general steps of the regression of Chinese concept stock,including "privatization delisting-dismantling VIE framework-A share market listing".The overview also elaborates on the five common ways of regression of Chinese concept stock: IPO,backdoor listing,curve merger and acquisition,new three-board listing,and double-tier structure of A-share U.S.stock,and compares their advantages and disadvantages at the same time.Secondly,this paper adopts the case analysis method to analyze the event of Giant Interactive backdoor Century Cruise Ship,and discusses the motivations of privatization,the motivations of backdoor listing and the performance after backdoor listing.The motivations of Giant Interactive to regress are mainly attributed to undervalue,strategic adjustment,circumvention of supervision and policy support.Combining these four reasons with the advantages and disadvantages of the five regression paths mentioned above,the paper analyses the reasons why Giant Interactive chose the backdoor listing route.When analyzing the performance after the regression,this paper uses the direct observation method to analyze the short-term performance,and uses the financial index method and Dupont five-factor analysis method to analyze the long-term performance.This paper also uses the financial strategy matrix to make strategic positioning for Giant Interactive after the backdoor,and provides financial strategy suggestions for the management after the company’s regression.Finally,this paper summarizes the relevant enlightenment from the case analysis,including the types of Chinese concept stock that should be privatized,the types that should be listed on backdoor listings and the types that can improve performance through regression.In addition,this paper puts forward some suggestions to the two main participants--management and investors.For the management,it is suggested that they start from the actual situation of the enterprise,and firstly make clear whether the overseas listing of the enterprise causes problems such as blocked strategic adjustment,undervalue and over-strict supervision,which further affects the financial performance.Then analyze whether the regulatory environment of the domestic capital market,the degree of recognition and the industry’s policy environment is conducive to solve the above problems,on which to decide whether to privatize.When choosing the route of listing,we should also follow the principle of starting from reality.For investors,it is suggested that they should always be alert not to blindly follow the trend,to avoid the pursuit of high prices,and to ensure that the investment behavior is based on a comprehensive understanding of the company’s fundamentals,a comprehensive analysis of the industry development trend,and an objective interpretation of national policies.