Research On The Effect Of Equity-based Rescue Fund On The Performance Of Private Listed Enterprises

Since mid-2015,the Chinese stock market has adjusted sharply leading to a continuous downturn in share prices,and many controlling shareholders who have made high proportional equity pledges are facing the risk of having their positions closed out by force once their pledged shares are forcibly closed out,and the risk of controlling shareholders will be passed on to private listed companies.The private listed companies,as an important part of the Chinese economy,play an important role in the national economy,and failure to address these risks will lead to several reactions.Therefore,starting in August 2018,financial institutions have responded to the national to introduce policies and set up bailout funds.The essential purpose of bailout funds is to bring long-term performance improvement to enterprises,not to solve short-term capital pressure and equity pledge risks;only by enhancing the blood-making capacity of the bailed-out enterprises themselves can they be helped to completely solve their financial problems and sustain healthy development,allowing the capital market to maintain stability.Can the bailout fund achieve the purpose of bailout for private listed enterprises? What impact does it have on the performance of the enterprises? This is the research question of this paper.Based on the proposed research questions,this paper firstly compares the background and operation of the bailout fund and analyzes the bailout fund’s path which is kinds of impact on the listed companies’ performances based on relevant theoretical foundations.The paper then analyzes the reasons for choosing the bailout fund from two perspectives,introduces the whole process of two bailout fund injections by Oriental Garden,and finally analyzes the impact of the equitybased bailout fund on the performance of Oriental Garden through a case study.The study finds that the bailout fund has bailout properties,and after the two bailout fund injections,Orient Garden’s short-term solvency,cost control,operating capacity,and liquidity have been improved to a certain extent.However,due to the state-owned background of the bailout fund in this case and the transfer of control caused by the equity-based bailout fund,a certain synergistic inertia emerged in the bailout of Oriental Garden,resulting in path dependence,which is manifested in the dependence of the source of funds on the bailout fund and the large government subsidies brought by the state-owned background instead of its own operating performance,the lack of R&D expenditures leading to a decline in its innovation capacity,and the dependence on the credit enhancement brought by the state-owned capital after the bailout fund injection.The company’s debt service pressure is high due to its reliance on debt financing after the injection of the bailout fund and the credit enhancement brought by the state capital,which leads to a high gearing ratio and a high debt pressure without an improvement in operating performance.The above study further discusses the problems that may exist in the implementation of the bailout fund,and serves as a reference for companies that want to choose a bailout fund to alleviate their financial pressure,but the performance impact varies across fund contracts and companies’ own situations,so the bailout fund should be set up with a suitable bailout fund program that takes into account the international situation of the target private listed companies.