A Study Of The Impact Of Spin-offs On Companies

With the development of the capital market,many state-owned corporations have achieved listing for the entire group.On this basis,if we want to further increase the reform of state-owned corporations and promote the reform of the economic system,carve-out,as a means of contract reorganization of asset,is an effective way.China's capital market is not mature,and the development of spin-offs or carve-outs is relatively slow.The carve-out of Tongrentang in Hong Kong in 2000 was the first carve-out case in China.In the following 20 years,case of carve-out is still rare.Due to regulatory restrictions,it is very difficult for Chinese listed companies to list on the domestic Ashare market.In 2004,the China Securities Regulatory Commission first made rules for the carve-out to overseas listings.In 2010,the Securities Regulatory Commission allowed domestic listed companies to carve out subsidiaries to list on the GEM.However,the supervisory authorities showed a prudent attitude towards this and carveout in China is still difficult.Until the launch of the science and technology board in 2018,the CSRC clearly allowed listed companies to carve out their subsidiaries on the science and technology board,providing new opportunities for many state-owned enterprises with large scale and business operations.This article takes a carve-out case as an example.In this case,CHINA RAILWAY CONSTRUCTION,which is parent firm,selled part of the equity of CRCC HIGH-TECH EQUIPMENT,which is subsidiary firm,to the public.This is China's first case of a carve-out of A + H stateowned enterprises listed on the Hong Kong stock market,which is strongly representative.This article will focus on the causes and economic consequences of corporate carve-out,including the impact of carve-out on corporate resource allocation,corporate governance,market value,and operating performance.This article uses the event research method and Du Pont analysis method for research.Firstly,have a understand of the definition of carve-out,and then read the previous literature,and extract and integrate the relevant theoretical hypotheses as the basis of the research in this paper.This article takes China Railway Construction and CRCC as the research objects,and conducts a compliance analysis of its carve-out.Then it discusses the reasons for this carve-out from four aspects,including(1)Reducing information symmetrical and obtaining reasonable valuation;(2)Implement a refocusing strategy and focus resources to develop the main business;(3)Broaden financing channels to ease capital needs;(4)Expand overseas markets.Next,based on the analysis above,this article finds the impact of the carve-out on the parent and subsidiary companies.This part will start from four aspects including resource allocation,corporate governance,market value and operating performance.Resource allocation includes the implementation of China Railway Construction's refocusing strategy and the investment and financing status of parent and subsidiary companies.Corporate governance includes the weakening of information asymmetry and the establishment of management incentive mechanism This article uses the event research method to discuss the impact of the carve-out on the market value of the parent and subsidiary companies.The excess return rate(AR)and cumulative excess return rate(CAR)are used as indicators to measure market value.As for performance,the impact on China Railway Construction is not obvious,because the spin-off of its subsidiary has little impact on it.In the study of operating performance,this article focuses on the specific reasons of how spin-off affect the performance of subsidiary firm.This paper has the following research findings :(1)The carve-out has broadened the financing channels of the parent and subsidiary companies.The parent company can obtain funds by transferring a part of control of some subsidiaries during the carveout process,and the subsidiaries can use the funds raised from the sale of new shares to invest in operating projects,which not only relieves the capital pressure faced by the parent company and the subsidiaries,but also help parent and subsidiary companies develop their respective main businesses and improve their core competitiveness.(2)From the perspective of corporate governance,the carve-out can not only effectively reduce the impact of information asymmetry.After the carve-out,the subsidiary has independent operating rights,and a new separate management salary incentive mechanism can be established,which can help improve the governance efficiency.(3)The carve-out is helpful to improve the solvency of the subsidiary,but if the subsidiary cannot effectively use the funds to obtain profits and the growth of income cannot keep up with the growth of assets,then the carve-out is not conducive to the improvement of operating capacity and profitability.It is also not conducive to improving the operating performance of subsidiaries.(4)The carve-out is conducive to the increase in the market value of the parent company and brings a positive premium effect to the parent company.This paper has the following significances.previous literature focused on the market value of the parent company and subsidiaries' operating performance,this article will analysis and verify the impacts of carve-out on the parent and subsidiary companies from multiple angles.Besides,previous literature always use ROA to measure the performance after carveout.However,this paper uses the dupont analysis system,focuses on the influence on CRCC's performance.At present,there are many state-owned enterprises have a desire to carve out their subsidiaries on Science and Technology Board,so this case in this paper can Serve as a good reference.