Research On The Motivation And Economic Consequences Of Listed Companies Directly Exchanging Listing From BSE To The STAR Market

With the continuous development of China’s multi-level capital market system,the transfer mechanism has been improved.In June 2020,the CSRC issued a document which required that after meeting the relevant conditions,companies listed on the selected layer of NEEQ could directly transfer to GEM and the STAR Market.Before the policy issued,companies listed on the selected layer of NEEQ that want to switch to a listed board need to delist from NEEQ and list on other boards by IPO,which is time-consuming and costly in capital.The issue of the transfer mechanism has opened up the transfer channel between the NEEQ,the GEM and the STAR Market,so that enterprises in the Selective Tier of the NEEQ can directly exchange their stocks to the GEM or the STAR Market through "direct transfer",without having to go through delisting and IPO to land on the GEM or the STAR Market,which greatly simplifies the process of exchange listing.The implementation of the transfer system has improved the efficiency of exchanging listing and further smooths the communication channels between different levels of the capital market,which will also have an important impact on the transfer decisions of companies.Therefore,by uncovering the reasons for the transfer of the companies listed on BSE and the economic consequences of "direct transfer",this paper hopes to provide companies listed on BSE,investors and the exchange with relevant suggestions for the transfer.The reasons for adopting the case study method are as follows:First,the case study method can provide a more comprehensive observation of the case company,which is conducive to the subsequent analysis.Secondly,the case study method can extract the logic behind typical events.This paper selects Guandian Defense Technology Co.,LTD(GDTC),Ltd.as a case company for the following two reasons:First,it is typical,as GDTC is the first listed company to successfully transfer from BSE to the STAR Market,and its exchanging makes sense for the transfer decisions of other companies.Second,the information is abundant,as the "first stock to transfer to the STAR Market",there are abundant analysis and reports about GDTC.The analysis ideas of this paper are as follows.Firstly,this paper describes the basic situation of GDTC and the process of exchanging to the STAR Market.Secondly,motivations for exchanging listing are analyzed in terms of the support of relevant policies,the advantages of the STAR Market and the enterprises’ own situation.Finally,the economic consequences of the transfer are analyzed from four aspects including exchanging cost,performance of companies ’s stock,R&D investment level and changes in structure of governance.The findings of the study on the motivation of exchanging listing are as follows.First,the support of the transfer mechanism and advantages of the STAR Market will make companies choose to exchange listing.Second,the popularity,market share and refinancing efficiency will be improved after exchanging listing.Thirdly,the considerable profitability,high technical barriers and their core technical advantages will increase confidence for exchanging listing.The findings of the study on the economic consequences are as follows.First,because the process of directly exchanging listing is easier compared to IPO,directly exchanging listing makes companies access higher-level capital markets earlier.Second,the market performance of the stock was not as good as expected after exchanging listing.Although there was a small improvement in the liquidity of the stock,the stock price even fell below the issue price of its listing on the selected layer because of the essential difference between exchanging listing and IPO.Third,after exchanging listing,companies should continue to improve the level of R&D investment and maintain their core technology advantages.Fourth,exchanging listing to a higherlevel capital market means facing stronger regulation,and companies will improve the quality of information disclosure and corporate governance structure to ensure a smooth exchanging.The theoretical contribution is that due to the transfer mechanism has just been introduced,there are few cases of exchanging listing.And scholars’ researches on exchanging listing in China are focused on the study of delisting from NEEQ and switching to the GEM or the Main Board,while this paper broaden the horizon of exchanging listing among various levels of capital markets.The practical revelations of this paper are as follows.First,compared with BSE,the lower investor threshold of the STAR Market means higher market risks,so enterprises should rationally assess their current development,risk resistance and future capital needs,and make prudent decisions of exchanging listing.Second,investors should be rational about exchanging listing and take many factors into account such as whether the stock market performance before exchanging listing and the future development potential of the enterprise.Third,the BSE needs to misalign with the Shanghai and Shenzhen exchanges,and enhance its attractiveness by organizing specialized activities.Fourth,CSRC can promote full implementation of the registration in order to facilitate the further alignment of the STAR Market and GEM with the Main Board,smooth the transfer channel between the STAR Market/GEM and the Main Board,and close the connection between different levels of the capital market.