Going Public in China: Reverse Mergers versus IPOs
61 Pages Posted: 14 Mar 2018 Last revised: 8 Apr 2019
Date Written: April 1, 2019
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
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