Going public in China: Reverse mergers versus IPOs

Charles Lee, Yuanyu Qu and Tao Shen

Journal of Corporate Finance, 2019, vol. 58, issue C, 92-111

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 (search for similar items in EconPapers)
JEL-codes: G12 G18 G20 G34 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (15)

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Working Paper: Going Public in China: Reverse Mergers versus IPOs (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:58:y:2019:i:c:p:92-111

DOI: 10.1016/j.jcorpfin.2019.04.003

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