Going Public in China: Reverse Mergers versus IPOs

61 Pages Posted: 14 Mar 2018 Last revised: 8 Apr 2019

See all articles by Charles M.C. Lee

Charles M.C. Lee

Stanford University - Graduate School of Business

Yuanyu Qu

University of International Business and Economics (UIBE) - School of Banking and Finance

Tao Shen

Tsinghua University

Date Written: April 1, 2019

Abstract

We study firms that go public through reverse mergers (RMs) versus initial public offerings (IPOs) in China. Using a manually assembled data set, we show that pre-listing RM firms are larger, more profitable, and less politically connected than pre-listing IPO firms. Chinese RM firms also have superior post-listing performance, in terms of both operations and stock returns, compared to IPOs matched on industry and size. Unlike IPOs, RM firms do not underperform the market in the long run. These results are in sharp contrast to the evidence on RMs from developed countries. We trace these differences to China’s stringent and potentially biased IPO policies, which appear to preclude even high-quality firms from accessing public markets.

Keywords: Reverse Mergers, Initial Public Offerings, Capital Market Regulation, Chinese Security Markets, Market Reform in China

JEL Classification: G12, G20, G18, G34

Suggested Citation

Lee, Charles M.C. and Qu, Yuanyu and Shen, Tao, Going Public in China: Reverse Mergers versus IPOs (April 1, 2019). Stanford University Graduate School of Business Research Paper No. 18-15. Available at SSRN: https://ssrn.com/abstract=3140281 or http://dx.doi.org/10.2139/ssrn.3140281

Charles M.C. Lee

Stanford University - Graduate School of Business ( email )

Stanford Graduate School of Business
655 Knight Way
Stanford, CA 94305-5015
United States
650-721-1295 (Phone)

Yuanyu Qu

University of International Business and Economics (UIBE) - School of Banking and Finance ( email )

No.10, Huixindong Street
Chaoyang District
Beijing, 100029
China

Tao Shen (Contact Author)

Tsinghua University ( email )

Department of Finance
School of Economics and Management
China

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