The Motivations And Economic Effects Of Equity Carve-outs In Science And Technology Based Companies

The equity carve out of subsidiaries of listed companies for listing and financing is a common corporate operation tool in European and American capital markets,which was introduced to China in the 1990 s.At the early stage of China’s capital market development,the mainstream of the market was the overall listing model,and the overall quality of some enterprises’ assets was poor,which seriously damaged the interests of small and medium shareholders.After the shareholding system transformation of state-owned enterprises began,it was required to investigate and dispose of non-performing assets and divest non-productive operating assets.Since the beginning of the 21 st century,the problems of transfer of benefits and whitewashing of statements involved in the equity carve outs have become more and more serious and have received great attention from the regulators.In view of the severe attitude of the regulators,the equity carve outs gradually fell into a depression,with only a few companies passing the approval.With the deepening reform of the domestic capital market and the landing of the Science and Technology Innovation Board,equity carve outs have seen a turnaround.on December 13,2019,the "Certain Provisions on Pilot Domestic Listing of Equity Carve-out Subsidiaries of Listed Companies" was officially released.Under the guidance of the programmatic document,domestic equity carve outs in the A-share market are expected to be realized.on February 25,2021,Sheng Yi Electronics successfully listed on the Science and Technology Innovation Board,becoming the first domestic equity carve out.What are the reasons for companies to actively pursue equity carve outs? What are the economic effects of an equity carve out and how sustainable is it? This paper examines the impact and significance of the capital operation of the equity carve out in deepening the supply-side reform of the capital market and reshaping the business structure of the company through the study of the equity carve out of Sheng Yi Electronics.This paper mainly adopts literature research method and case study method to study the case.First,we summarize the existing research results of domestic and foreign scholars to lay the theoretical foundation for the analysis.Then,the analysis is carried out by means of a case study.Then,the case study introduces the basic information of the parent and the subsidiary,and lists the preparatory behaviors of Sheng Yi Technology before the equity carve out to meet the requirements of the Securities and Futures Commission.The specific analysis integrates macro policies,market environment,and corporate development strategies,analyzes the motivation of the equity carve out from both external and internal aspects,and explores the economic effects generated by the equity carve out of Sheng Yi Technology through multiple perspectives,including market effects,financial effects,and non-financial effects.It aims to enrich the research on the capital operation behavior of equity carve outs in the capital market and provide management suggestions for enterprises with similar plans to improve the system construction related to equity carve outs.In this paper,we analyze the external opportunities and internal motivations of the equity carve out case,and find that policy support is the prerequisite for a smooth equity carve out,and development is the core demand of the enterprise seeking an equity carve out,specifically to achieve scale expansion,broaden financing channels,focus on main business operations,and enhance market value.Secondly,this paper uses the stock price performance and capital market reaction of the parent and subsidiary at the key point of the equity carve out to study the market effect.The financial effect is determined by analyzing the individual financial indicators of the parent and subsidiary to determine the development of the company,and using factor analysis to select companies in the same industry under the same market environment for comprehensive evaluation.The non-financial effects are developed from the perspectives of research output,brand effect and management incentives.The comprehensive research paper finds that:(1)financial reform and policy support are the preconditions for enterprises to conduct capital operation behavior,and enterprises should follow the trend to share the reform dividends and realize the long-term development of the company.The intrinsic motivation of the equity carve out of Sheng Yi Technology is to alleviate financing difficulties and enhance financing efficiency;rationalize business structure and focus on main business operation;scale expansion and development,reduce costs and increase efficiency,and enhance comprehensive competitive strength;and independent valuation of business and enhance overall value.(2)The parent subsidiary has produced positive performance in terms of market performance and operational performance in the short term after the equity carve out,and the good financing effect significantly improves the capital structure of the company and alleviates the shortage of project funds.Long-term performance is not yet optimistic,and should focus on improving governance efficiency and pursuing endogenous growth.The following recommendations are also made:(1)Companies aspiring to implement an equity carve out should base on the company’s development strategy,carve out high-quality businesses,and continue to focus on the operational growth of their subsidiaries after listing.(2)Investors should invest prudently,not to speculate blindly,pay attention to the intrinsic value of enterprises and make reasonable decisions.(3)The regulator should strengthen the guidelines for corporate equity carve outs,guide companies to conduct equity carve outs in a compliant and lawful manner,and achieve full process supervision and strict regulation.