Capital Manipulation Or Self-development?Research On Motivations And Economic Consequences Of Equity Carve-out

Equity carve-out enables the parent company to segment subsidiaries or part of its business and finance independently in the stock market.Compared with foreign capital market,the development of this asset restructuring method in China started late and developed slowly,and most of the equity carve-out cases in China chose the overseas capital market in the early stage.The equity carve-out of Chinese enterprises in the domestic market only entered a stage of rapid development after 2019.However,due to the fact that China’s capital market is still in a relatively ineffective stage,financial violations occur from time to time.In China,the number of individual investors is large,and some cases of equity carve-out showed that this method has been distorted to a way of raising money.In addition,since the outbreak of the covid-19 epidemic at the end of 2019,the social economy has been deeply affected.In this occasion,companies in the biomedical sector,especially those related to the coronavirus and influenza virus,have been increasingly attractive in the capital market.Among the equity carve-out cases in China’s domestic market,the number of enterprises in the biomedical sector is large,and in hot areas of capital market,the "information noise" is more likely to adversely affect the market,so it is of vital significance to identify whether the real purpose of the domestic equity carve-out of enterprises is to satisfy the needs of growth or the capital manipulation for raising money and interest transfer.Therefore,this paper selects Hualan Biological Bacterin Inc.,who chose to develop covid-19 vaccines,and has carved out and listed on the Growth Enterprise Market,and its parent company,Hualan Biological Engineering Inc.,as research objects,to study the motivation and economic consequences of the equity carve-out and IPO,so as to identify the real purpose of this asset restructuring strategy.This paper uses literature review method,case study method and event study method to comprehensively analyze the motivations and economic consequences of this case of equity carve-out.Firstly,this paper summarizes and sorts out the relevant research results on the conceptual connotation,decision-making motivation and economic consequences of equity carve-out,and summarizes the relevant theoretical results on this basis and combined with the topic of this paper.Then,in the part of case analysis,this paper first introduces the situation related to the equity carve-out of the research objects and sorts out the process of equity carve-out,so that readers can form a basic understanding of the enterprise in this case.In the part of the motivation analysis,this paper puts forward hypotheses from two perspectives:self-development and capital manipulation.The part of self-development includes 3 aspects,financing,operating and market capitalization management.So as to analyze the motivation of the case comprehensively.In the analysis of the economic consequences of carve-out and listing,this paper starts from the aspects of financing,operation market effects and behaviour of major shareholders,to analyzes the economic consequences brought by equity carve-out and compare the performances of the companies before the equity carve-out.After the comprehensive analyse,it is concluded that in the case of the equity carve-out of Hualan Biological Bacterin was motivated by the purpose of capital operation.The company directly obtains a large amount of funds through the IPO,but the corresponding economic consequences tend to be negative.The main purpose behind the carve-out and listing of Hualan Biological Bacterin is to raise funds and to manipulate the stock price,rather than to enhance the value of the enterprise by improving operation and optimizing governance.Based on above research conclusion,this paper makes recommendations for different entities,including enterprises,regulators,and investors.For enterprises,the decision of equity carve-out should be made on the basis of pursuing long-term interests.For regulators,it is necessary to strengthen supervision of enterprises before equity carve-out,and to actively follow up their operating conditions after carve-out,especially in terms of capital operation.For investors,especially individual investors,they should be alert to the conceptual hype of company,and consider all aspects of the company when making investment decisions.