Analysis Of The Motivations And Effects Of Corporate Spin-off

As one of the important capital operation methods of asset reorganization,equity carve-outs has been widely used in foreign countries.Foreign scholars have found that equity carve-outs can generate abnormal stock return for listed companies,but no consensus is reached about operating performance.However,the development of equity carve-outs in China is not smooth and it has been regulated for a long time,which limits domestic scholars’ research in carve-outs to a certain extent.In order to increase the financing methods,vigor and liquid markets,in December 2019,the CSRC issued the "Pilot Provisions for Equity Carve-outs in domestic market "."Pilot Provisions” sets off a boom in domestic carve-outs,and SSE STAR Market,as the main carve-outs destination,received great attention.In this context,this paper selects the first carve-outs case in SSE STAR Market as the research object,to reflect the economic effects on parent firm and units from carve-outs and SSE STAR Market’s specific characteristics,and to verify the objective-consistency of the carve-outs motivation and its economic effects.First of all,considering SSE STAR Market is a new capital market,this paper describes the listing process and focuses on the main points of IPO screening about information disclosure requirements such as the legal procedure,independence,related transactions and horizontal competition under registration-based mechanism,which could provide reference and proposal for the latter.Secondly,this paper focuses on the relationship between carve-outs motivation and performance.Starting with the carve-outs motive,the paper analyzes the case one by one by the corresponding motivation theory hypothesis to reveal its intrinsic motivation,and investigates the performance related to the motive,so as to verify the objective-consistency.Through a comparative study of financial data,operations and comparable firms,it is found that Micro Port Scientific Corporation’s motives of carveouts is based on raising funds for parent firm,future development and management incentives for the subsidiary.The parent can increase its loan from carve-outs by changing capital structure to lower its leverage.However,the fund raising of the subsidiary cannot change the actual solvency of the parent firm,so the increased loan shows the increase of long-term liabilities.For the subsidiary,on the one hand,equity carve-outs offers an independent financing platform,changing the difficulties of fund raising,which can provide financial support for future expansion.However,the benefits of fund-raising in project is not obvious in the short term.On the other hand,carve-outs effectively incentives managers in the short term.The research indicated that the total per capita remuneration increased by nearly 28% in the first year of carveouts,but the management salary payment rate and expenses rate decreased,while operation ability,growth and profitability expanded significantly.This illustrates that market-oriented salary and dividend distribution system enables managers to obtain revenue and profit dividends in directly related to operating performance,and that the stock traded publicly brings them more profit and autonomy,which promote effective control of expenses and improve operating performance.Finally,this paper uses the event research method to analyze and study the market reaction of carve-outs during three window periods,and tested by the trend of stock price at the same period.The empirical results show that carve-outs can bring abnormal stock returns to the parent firm,but a little different with the research made before.Due to the public’s double uncertainty about the new market and the successful listing,carve-outs did not perform obviously in the first two announcement period before SSE STAR Market established,and even during the initial announcement period,the empirical results showed negative effects.But with the IPO approaching,the parent firm’s share price rose and it achieved a cumulative excess return of 9.67 percent in the five trading days after the IPO date,which indicated that the subsidiary’s share price performance was the main reason for this abnormal return.In general,the equity carve-outs can bring positive effects to both parent firm and the subsidiary,which is consistent with prior research results,and also shows the unique characteristics of SSE STAR Market.First of all,listed subsidiary should be scientific and technological innovation firm in one of the seven industries of SSE STAR Market required.Secondly,listing efficiency is higher under registration-based mechanism,but with higher information disclosure requirements.Finally,the negative effect produced during the first announcement period is different from the previous research results,indicating that short-term abnormal return of carve-outs during the announcement period is not necessarily fully suitable for the new capital market.