Research On The Motivation And Economic Consequences Of Equity Carve-outs

With the continuous development of the domestic capital market and the gradual improvement of relevant policies,the equity carve-outs has gradually become a hot topic in the capital market.In December 2019,the China Securities Regulatory Commission promulgated the "Pilot Provisions for Listed Companies to carve out Subsidiaries and Listed in China".After the implementation of the new regulations,many companies have expressed their willingness to carry out equity carve-outs,besides,more and more overseas listed companies also focus on the A-share market,intending to carve out their subsidiaries and return to A-shares.Facing this wave of equity carve-outs,this paper intends to systematically explore the entire process of equity carve-outs,and solve the reasons why companies are going to carve out their subsidiaries,the path selection,the risks that the equity carve-outs will face.As well as whether the equity carve-outs can really create value for the company,it is hoped that this paper can provide a reference to those companies that are willing to arry out equity carve-outs,especially Hong Kong-listed companies that carve out their subsidiaries and return to A-shares.Based on the relevant literature and sorting out the theoretical basis of the equity carve-outs,this paper analyzes the motivations,paths,conditions,risks and responses of the equity carve-outs,and the economic consequences of the equity carve-outs.This paper builds the basic framework of the equity carve-outs,and analysis the case under the guidance of the framework.Huabao International Holdings Limited’s equity carve-outs of Huabao Flavours&Fragrances Co.,Ltd.is a typical case in recent years in which Hong Kong-listed companies have carved out their subsidiaries and returned to A shares.This paper uses this case as the research object.Through analysis,it is found that the internal motivation for Huabao International Holdings Limited’s equity carve-outs is mainly to adjust the strategic layout and release the external motivation for the valuation of subsidiaries and the enhancement of professional operating capabilities.The external motivation is to adapt to the needs of the rapid development of the industry.Then,according to Huabao International Holdings Limited’s own needs and the external environment,this paper analyzes the rationality of its path of the equity carve-outs.In addition,through the analysis of the risk of the equity carve-outs,it is found that Huabao International Holdings Limited has the risk of infringing on the rights and interests of small and medium shareholders and the carve out of high-quality assets,resulting in a drop in stock price.Regarding the economic consequences of the equity carve-outs,this paper conducts research from four aspects of market reaction,financing effect,governance effect and operating effect,and finds that equity carve-outs can bring positive market reaction,enhance corporate financing capabilities,improve corporate governance structure,and enhance corporate operating capabilities,thereby create value for the company.Finally,based on the research conclusions,this article puts forward the corresponding enlightenment:the appropriate timing and method of equity carve-outs should be selected,the parent company should reasonably choose the carve out target.In addition,parent and subsidiary companies must continue to pay attention to and respond to potential risks.