中国高壳牌价值上市公司的表现

PerformanceofListedCompanieswithHighShellValueinChina

Abstract

UnderstrictIPOcontrols,listedcompaniesenjoytheshellvaluethatcomeswithscarcelistingqualifications.BydefiningtheconceptofExpectedShellValue,thispaperempiricallycalculatestheshellvaluecontentoflistedcompaniesandexploresthemarketperformanceofcompanieswithhighshellvalue.Firstly,thispaperexploresthefactorswhichhaveaneffectoftheshellvalueandtheprobabilitytohappenbackdoorlistingoflistedcompanies,andthenconstructsanindextomeasuretheshellvaluecontentoflistedcompanies.Ifindthatfirmswithworseperformance,smallerscale,lowerinsidershareholdingratiohavegreaterprobabilitytobecomeashell.Companiesthatadoptnegativeinvestmentanddividendpoliciesatthesametimearealsomorelikelytobeashell.Then,throughportfoliotest,Iconcludethathigherexpectedshellvalueearnhigherexcessandabnormalreturn.Inaddition,afterthecompletionofreversemerger,RMcompanies’stockperformanceandfinancialperformancehavesignificantlyimproved,evenbetterthantheIPOcompaniesinthesameperiod.

Keywords:Reversemerger;ExpectedShellValue;IPOs;ChineseStockMarket

1.Introduction

InChina'sstockmarket,reversemerger(whichisalsocalled“backdoorlisting”)andIPOhavealwaysbeenthetwomainwaystogopublic.ReversemergerhaslongbeenanalternativetoIPO,favoredbycompanieswaitingtolistbecauseitavoidsthelongandcomplicatedwaitingqueue.Inthebackdoorlisting,theshellcompanyisoftenacquiredatapremiumsothatitsstockisoftensoughtafterbytheinvestors.“Pursuingshells”hasgraduallybecomeaunique“landscape”intheChinesestockmarket.BasedonChen(2017),from2008to2017,259companiesenteredtheAboardmarketviareversemerger,almostanaverageof26oneyear,andtheaveragesharepriceofeachIntupbymorethan60%afterlisting.

Therearemanyreasonsforthisphenomenon,amongwhichtheabovementionedIPOreviewisrelativelystrict,delayingthelistingtimeofmanycompaniesisaveryimportantfactor.Accordingtothestatisticsinthispaper,thecompleteIPOprocessofacompanytakesmorethan1.5yearsonaverage,anditalsofacesmanytestsofnon-economicfactors.UndertheIPOsysteminChinaformorethanadecade,Icanevenfindthatpoliticalfactorsplayabigroleincompany’sadmission.Accordingtothestatisticsinthispaper,thecompleteIPOprocessofacompanytakesmorethan1.5yearsonaverage,anditalsofacesmanytestsofnon-economicfactors.UndertheIPOsysteminChinaformorethanadecade,Icanevenfindthatpoliticalfactorsplayabigrole.Forcompaniesthatgopublicthroughareversemerger,ittakesabout10-13monthsonaverage.Thedifferenceintimecostbetweenthetwowayisoftenintolerableforsomehigh-quality,profitable,well-fundedprivatecompanies.Atthesametime,China'sstockmarketalsohasamoreunreasonabledelistingmechanism.Comparedtoforeignmarket,thenumberoflistedcompaniesinChinaisparticularlyvaluable.Italsoallowssomepoorlyperformingpubliccompaniestoselltheirpositionasapubliccompany,inotherwords,toactivelybecomeabackdoorinabackdoortransactioninordertoraisealotofcashandchangethecompany'sbadsituation.Themismatchbetweensupplyanddemandforlistingentryandthehugeprofitsfromsellingtheshellhaveledmoreandmoreparticipantstojointhetrade.

Butwiththegradualrelaxationofthemarketenvironment,whenthelistingqualificationisnolongerascarceresource,thevalueofshellresourcesinChina'sstockmarketwillnaturallyshrinkandbringmoreuncertaintytothereversemergers.Therefore,theresearchontheinfluencefactorsoftheshellvalueoflistedcompaniesandtheperformanceofthoseshellcompaniescanprovidescientificbasisforthetargetcompanyselection,negotiationandguidetheenterprisestomakereasonablepricewhentheyareinthebackdoorlisting.Inthelongrun,itwillalsohelpusestimatetheeffectofintroducingregistrationsystemreformbyCSRCsince2017,whichwouldshrinktheproportionofshellcompaniesinthewholemarket.Investorsarealsomorelikelytoobtainbenefitsfromscientificstockselectingprocess.

Inordertostudytheaboveissues,thispaperfocusesontheconstructionandcalculationofthevariabletomeasuretheshellvalueofthecompany,andbasedonthisvariable,studyingthemarketperformanceofshellcompanies,especiallythosewithhighshellvalues.

IfollowsCampell(2008)andCremers(2009)toconstructtheExpectedShellValuethisconcepttomeasurethecontentofcompany’sshellvalue.WhatmakesthisconceptdifferentfrompreviousconceptsisthatIusetheideaofprobabilityexpectationtoassumethatallcompaniesinthemarkethaveacertainshellvalue.Inthiscase,thecompanywithhigherexpectedshellvalueismorelikelytobethetargetofbackdoorlater,whilethecompanywithrelativelysmallexpectedshellvalueindicatesthatthecurrentbackdoorchancemaynotbeverylarge.Next,IuseLogitregressionwaytostudytheprobabilityoflistedcompaniesbecomingRMtargets.Ifindthatcompanieswithsmallscale,lowprofitability,highdelistingriskandlowequityconcentrationareoftenthetargetsofRMS.Italsoconsiderssomeimportantforecastfactorsoffinancialdifficultiesorfinancialconstraints,suchasleverageratio,cashholdingsandoperatingcashflow.Ourresultsshowthatnoneofthesevariablescanpredicttheprobabilityofbecomingashellincrementally.Afterthat,ImaketheportfoliotestbasedontheExpectedShellValue.Idividealllistedcompaniesinto10groupsaccordingtotheirExpectedShellValue,andtesteveryportfoliotofindifitcanearnsufficientprofit.Atthesametime,Ialsograduallycomparetheperformanceofshellcompaniesatthelevelofstockreturnandfinanciallevelbeforeandaftertheirlistingdate.Theresultsshowthatshellvaluecanbringsignificantpositivebenefitstothecompanyandmakethecompany'sownconditionsdevelopbetter.

Therestofthispaperiswrittenasfollows.Section2describesshellvalueresearchsituationandrelatedliterature.Section3describesRMcompaniesandIPOcompanies’situation.Section4describesthecalculationoftheexpectedshellvalue,thesample,andthesummarystatistics.Section5describesthestockreturnandfinancialperformanceofshellvaluecompanies.Andthelastsection6abouttheconclusionandthefurtherapplicationthinking.

LiteratureReview

MethodstoMeasureFirm’sShellValue

Howtomeasurethevalueoftheshellisacrucialandpracticalissueinthereversemergerprocess.However,thereisnoconsensusonhowtomeasureshellvalueinacademiccircles.Thispapersummarizesshellvaluemeasurementmethodsintothefollowingcategoriesbycombingrelevantliterature:

Incomemethod.TheincomemethoddefinesshellvalueastheinterestthatthebackerobtainsintheReversetakeover,includingthevalueoftherighttocirculate,thevalueofraisingfundsfornewprojects,andthevalueoftaxsavings(FengYu,2018).Reversemergercanbringbenefitstothesideofthebackdoor,ofwhichthegreatestbenefitisaccesstothestockmarketfinancingfacilities.Fromthepointofviewofincome,ChenPinliang(1999)thoughtthatthedirectpurposeofbackdoorlistingistoraisefundsfromthesecuritiesmarketbywayofshareallotment,socashflowdiscountmethodcanbeusedtoestimatethevalueofbackdoor.Thisestimationmethodmayhavebeenreasonableinthemarketenvironmentatthetime,butitonlycalculatesthevalueofthelistedcompanyidentityfinancing,whichfacilitatesthisadvantage.Itignoresthevalueoftheotheradvantagesandthecostofthedisadvantagesofthelistedcompany'sidentity.Inaddition,intoday'smarketenvironment,rightsissuefinancingandotheractivitiesaresubjecttomorestringentregulation.Listedcompaniesthroughreversemergertofinancethisadvantageisalsotoacertainextentweakened.In2012,XiaoZhenhongandSunFenglingputforwardtheprofitandlossanalysisframeworkofM&Afinancing,andthequantitativeanalysismodel,whichhascertainreferencevaluetotheevaluationofshellresources.

Costmethod.Somescholarsbelievethattheconsiderationpaidbyabackdoorcompanytoobtainthecontrollingrightofthebackdoorcompanyistheshellvalue,whichincludesthepaidshares,cashandrelatedexpenses(LiuXiaotingandZhangJingshi,2015).Butinfact,thismeasureonlycalculatespartofthecostofbackdoorlisting.Thestockpriceofshellcompaniesgenerallyrisesafterbackdoor.Thereasonisthatthebackdoorcompaniestransferpartoftheirintereststotheoriginalshareholdersofshellcompanies,whichisalsoapartofbackdoorcostandshellvalueforthebackdoorcompanies.Onlytheconsiderationpaidforobtainingthecontrollingrightofshellcompaniesisignored.YaoZheng(1999)tookDagangOilfield'sbackdooremissaryasanexampletostudytheprocess,costandincomeofbackdoorlisting.Hebelievedthatbackdoorcostincludestheconsiderationpaidforthepurchaseofshellcompany'ssharesinthesecondarymarket,aswellasthelawyer'sfee,stampdutyandmanagementfee.Theconsiderationpaidbythebackdoortoacquiretheshellcompanymainlyincludescashandstock(DengLuandZhouNing,2015).WangXingyu(2002)thoughtthattheshellvalueisduetothescarcityoflistingresources,andiscompletelydeterminedbythemarket,whichisequaltotherent-seekingcostandthecostofissuingsharesspentbyenterprisesforlisting,amongwhichtherent-seekingcostisaffectedbymanyfactors.

Marketcomparisonmethod.Themarketcomparisonmethodcanbecalledthecomparativecompanymethod.Infact,itistousethevalueofcomparablecompaniestomeasuretheshellvalueofshellcompanies,orusetheincome,bookvalueorpriceearningsratioofcomparablecompaniestocalculatetheshellvalueofshellcompanies(FengYu,2018).However,thepremiseofthemarketcomparisonmethodistofindasuitablecomparablecompany,andthevaluationofthecomparablecompanyisreasonable.Alford(1992)foundthatP/Evaluationmethodisoftenusedtosolvethevaluationproblemofenterprises,especiallythevaluationproblemofenterprisestobelisted,andthecoreproblemofP/Evaluationistofindcomparablecompanies.Accordingtothestudy,theeffectivestandardforselectingcomparablecompaniesistochoosecompaniesinthesameindustryortocombineriskandrevenuegrowtheffectively.Moreover,thelargertheenterpriseis,themoreaccuratethevaluationwillbeifcomparablecompaniesareselectedinthisway.HuXiaomingetal.(2013)studiedthevaluationofnon-listedcompaniesinM&A,andbelievedthattheuseoftheprincipleoffuzzymathematicsisconducivetotheselectionofsuitablecomparableenterprises.

(4)Optionpricingmethod.Theoptionpricingmethodconsidersthattheinvestmentactivityofbackdoorlistingissimilartofinancialoption,andtheoptionpricingmodelcanbeusedtoevaluatethevalueofshellresources.HerathandJohera(2002)studiedtheapplicabilityofrealoptionpricinginstrategicM&A.theybelievedthatinvestmentopportunity(M&A)hastheflexibilityofmanagement,thatis,theacquirercanchoosetopostpone,increase,reduceorgiveupaM&Aproject,whichisverysimilartooptions,butthetraditionaldiscountedcashflowvaluationmodeldoesnotincludetheflexibilityofmanagementValue.Basedonthis,theybuildarealoptionpricingmodelinM&A,fullyconsideringthevalueofmanagementflexibility.XuJiaandXuZhongming(2002)alsobelievedthatthetraditionalpricingtheoryofenterprisescouldnotreasonablyexplainthevalueofshellresources.Shellresourcesvalueisthevalueoffutureearningsgrowthbroughtbythequalificationofenterprisestobelisted.Forthebackdoorside,itisequivalenttoacalloption,whichconformstotheoptionpricingidea.Therefore,theB-SOptionpricingmodelcanbeusedtoevaluatethevalueofshellresources.Theoptionpricingmethodprovidesanewideafortheevaluationofshellvalue,butthereisapreconditionforusingtherealoptionpricingmodel,thatis,thebackdoorsideshouldbeabletopredicttherestructuringcostrequiredforbackdoorlisting,anditisdifficulttoobtainthecoefficientsinthemodel.

Spreadmethod.AccordingtoKeChangwen(2010),theshellvalueoflistedcompaniesisequaltothedifferencebetweenthevalueoflistedcompaniesandthevalueoflistedcompaniesasprivatecompanies.Therefore,thismethodisalsocalled“pricedifferencemethod”.Becausethevalueoflistedcompaniesasnon-listedcompaniescannotbedirectlyobserved,therearedifferentspecificestimationmethods.KeChangwen(2010)thoughtthattheevaluationvalueofnetassetscanbeusedtoestimatethevalueoflistedcompaniesasnon-listedcompanies,butthismethodignorestheproblemthatmanyshellcompanieshavealargenumberofinefficientoreveninvalidassets,andthebooknetassetsactuallyoverestimatethecompany'svalue(ChenPinliang,1999).KeChangwen(2011)believedthatbeforethereformofsharestructure,non-tradablesharescannotbetransferredontheexchange,whichisessentiallythenatureofsharesofprivatecompanies.Therefore,thetransactionpriceofnon-tradablesharescanbeusedasanagentvariabletomeasurethevalueoflistedcompaniesasnon-listedcompanies.Forthecurrentcapitalmarketwithoutnon-tradableshares,thismethodisnotapplicable.

RelatedLiterature

Infact,therelationshipbetweenbackdoorlistingandvaluationoflistedcompaniesisquitedeep.M&Aisanimportantwaytointegrateandoptimizeresourceallocation.Ifwedowellinassetoperation,capital,marketandtechnologysharingandcorporatecultureintegrationandcommunicationafterM&A.M&Acanproducesynergyeffect,bringbenefitstoenterprises,andalsohaveapositiveimpactonthestockpriceoflistedcompaniesintheshortterm(HuangandLing,2003).Batesetal.(2008)andCremersetal.(2009)foundthattheprobabilityofM&Aoflistedcompanieswasnegativelycorrelatedwiththeirvaluation,whichwasinlinewiththeeconomicintuitionthatthoseunderratedcompaniesweremorelikelytobeacquiredbyothercompanies,buttheresultswerenotstatisticallysignificant.Inaddition,somescholarshavedifferentfindings.Palepu(2006)andAmbroseandWilliam(1992)foundthattheprobabilityofM&Ahasnothingtodowiththecompany'svaluation.Rhodesetal.(2005)evenfoundthattheacquiredcompanyhasahighermarketvaluebookratiothanthereferencecompany.

Infact,thestockpriceandtheactivityofbeingmergedaffecteachother.Ontheonehand,thestockpriceofacompanywilldecreasebecauseofwrongpricingormismanagement,andthedeclineofthecompany'svaluationwilleasilyleadtothemergerofothercompanies,whichistheso-calledtriggereffect;Ontheotherhand,duetothedeclineofvaluation,themarketexpectsthatlistedcompanieswillbemerged,andmoreinvestorswillbuysharestoreturntonormalvaluationandmakeprofits,sothepriceofshareswillrise,whichiscalled“expectationeffect”(BennettandRobert,2017).Becauseofthisendogeneity,itisbiasedtodirectlystudytherelationshipbetweenthetwo.Edmansetal.(2012)studiedtherelationshipbetweenM&AactivitiesandcompanyvaluationonthebasisofeliminatingtheendogeneitybetweencompanyvaluationandM&Aactivities,foundthatstockpricewillaffecttheprobabilityoflistedcompaniesbeingacquired,andconfirmedthatthereisaprofoundrelationshipbetweenthetwo.

Tosumup,theresearchonbackdoorlistinghasalonghistoryinacademia.However,mostoftheexistingresearchesfocusonthequalitativeanalysisofthemeasurementofshellvalue,whichisapracticalandcoreissue,anddonotconsidertheinfluenceoftheexpectationofbackdooronthestockpricebeforebackdoor.Underthisbackground,thispaperconstructstheshellvaluemeasurementmodelbasedontheexpectedshellprobabilitymadebyLogitregression,andconductsthecorrespondingempiricaltest.

ShellCompaniesversusIPOFirms

ProcedureofReverseMergers

Reversemergersarealsoknownas“buyingshells”.Duringthisprocess,shareholdersofaprivatecompanyacquireabsolutecontrolofalistedcompanywiththehelpofaninvestmentbankingadviser,andthenthecompanyreverse-purchasestheassetsandbusinessoftheprivatecompanyandmakesitasubsidiaryofthelistedcompanytoachieveindirectlistingpurpose.

Comparingtoanothergoingpublicmethod,whichisalsoamorecommonwayinthecapitalmarket,InitialPublicOfferingownsawidertargetfirmsandlongerhistory.SinceChina'sreformandopeningupin1978,China'sstockexchangeplatformwasformallysetupintheearly1990s.IPOsystemhasalsogonethroughnearly30yearsinChinaMainland.ItcansometimestakecompaniesafewyearstocompleteallthestepsofanIPO,butmoreimportantly,China'sIPOvettingprocessisveryor“toorigorous”comparedtootherdevelopedcountries.AsoftheendofOctober2017,forexample,973companieswereinChinawaitingtobeprocessedbytheCSRC.Butatlast,only107companies,almosttenpercentoftotalandmanyofthembeingstateowned,wereallowedtogopublic.Thisisnotjustanoccasionalphenomenonandmanyexpertscallit“impureauditing”.Infact,basedonFan,Wong,Zhang(2007)andLi,Zhou(2015),politicalfactorsplayadisproportionateroleindeterminingthequotaforIPOsinChinasothatthefinalresultsometimesmaynotbeentirelydependentoneconomicefficiency.Thismaybeasupplementaryexplanationforthepreponderanceofstate-ownedcompaniesinIPOquotasovertheyears.

Therefore,itisnotdifficulttoseefromtheabovethatforcertainenterprises,IPOisawaytotakealotoftimeandcost.Atthistimeforthem,takethebackdoorlistingroadisamoreworthyofconsideration.WecanseefromtheFigure1belowthattherearesevenkeypointsintimetogopublicthroughareversemerger.Accordingtothese,thewholeprocesscanbedividedintothreestages.Inthefirststage,theshareholdersofthebackdoorcompanywilldiscusswhethertoapprovethereversemergerofthecompanyandissueanapplicationtoSASAC.Afterthecompletionofthefirststage,thesecondstagemainlyfocusesontheauditoftheinternalconditionsofthecompanybythesecuritiesregulatorysystemtojudgethatthereversemergerofthecompanyisincompliancewithlawsandregulations.Inthelaststage,thecompanyseekingtobelistedthroughbackdoorsignedaformalpropertyagreementwiththebackdoorcompanyandbeganthedistributionandtransferoftheiroriginalassets,untilthefinalchangeofthecompany'sbusinessregistrationrights.

Figure1.Theprocedureofreversemerger

Fromabovewecanseethatthewholeprocessofbackdoorlistinglastsabout10to13months,whichismuchlessthanthetimeittakestogopublicthroughanIPO.BasedontheFigure2below,itpresentsthetimewaitingtogopublicdistributionthroughIPOin2018inChina(dataiscollectedfromNationalBureauofStatistics).WecanclearlyseethatthevastmajorityofIPOreviewtimeismorethanayear,andafewcompanieseventaketwoorthreeyearstocompletetheentireprocess.Thedifferenceissignificantbetweenthesetwocategories.Therefore,someprivatecompaniesthatareingoodoperatingconditionandhavesufficientcapitaloftheirownhavetakenintoaccountthetimecostandtheuncertainpoliticalfactorsintheIPOprocess.Atthistime,theyaremorelikelytofinda“shell”inthemarketthatarewillingtosellandpropersoastoachievetheirgoalsmorequicklythroughreversemergers.

Figure2.ThewaitingtimedistributionthroughIPOin2018

SituationofRMCompaniesandIPOCompanies

ComparedtotheIPO,reversemergertakingtimeisshorterandtheintermediatestepsarerelativelysimple.Butinfact,thenumberofbackdoorlistingsinthecapitalmarkethasalwaysbeenmuchsmallerthanthenumberofIPOs.Formuchofthetime,itplayedacomplementaryroleandneverbecomemainstream.

Infact,fromtheoverallyearsofimplementation,backdoorlistinginChinaisstillarelativelynewway.Thismethodwasmorecommonindevelopedcountriesintheearlydays.WhenitwasfirstallowedtobeimplementedinChina,backdoorlistingplayedmoreofarolethanitdoesnow.Atthattime,shellcompaniesweremoreconnectedtotheconceptofoffshorecompanies.Withtheimprovementoflawsandregulations,backdoortradinghasgraduallybecomeauniquephenomenoninChina'sstockmarket.BecausetheIPOauditsystemindevelopedcountriesisrelativelyperfectandtheprocessissimpler,morecompaniesthatwanttobelistedabroadwillchoosethenormalwaytoachievetheirgoals.Andthoserejectedcompaniesareoftenkindofinferiorcompaniesbecausetheirownconditionsreallydonotmeettherequirementsofthemarket.However,aswesaidbefore,theIPOauditsysteminChinaismorecomplicatedandtroublesome,sosomecompanieseagertogopublicwillchoosetobuyashelllisting.Butinfact,thepriceofbuyingashellisalsoextremelyhuge.Thecostofpurchasingthelistedquotabytheunlistedcompanyisgenerallyregardedasthevalueoftheshell,inotherwords,thevalueofthelistedcompany'squotaalone.FromCharlesLee(2017),unlistedfirmspaidanaverageofbetween2.9to4.4billionRMB(ormorethan400milliondollars)foreachlistedshell.SotheexistenceofthishugeshellvaluepartlyexplainswhysofewcompaniesinChina'sstockmarkethavegonebustanddelisted.Inmanycases,thesheervalueofthelistingstheyoccupyhasbeenthelastbulwarkagainstunderperformingpubliccompanies.

InordertobemoreobjectivetoshowthereversemergersandIPOssituationinChina'sstock,wecollectedthenumberofcompaniesparticipatinginRMandIPOeachyearfrom2009-2019(thenumberofRMsaremanuallyobtainedfromTHSandtheCSRCrelevantfilesandtheIPOsarecollectedfromNationalBureauofStatistics)aspresentedinTable1andFigure3.

ItcanbeseenthatthenumberofbackdoorlistingenterprisesandIPOlistedenterprisesgenerallypresentstheoppositetrend.In2008,theCSRCsuspendedtheIPOreview,followedbyasurgeinthenumberofbackdoorlistings.Inmid-2009,theCSRCresumedtheIPO,andthenumberofbackdoorlistingsgraduallyshrankafter2010.Inlate2012,theCSRCsuspendedIPOsagainfor15months.Thisledtothepeakofbackdoortransactionsin2013and2014.AlthoughtheCSRCresumedIPOafter2014,theCSRCsuspendedIPOagainduetothestockmarketcrashin2015,sothenumberofbackdoortransactionsdidn’tdropsignificantlyin2015.

Table1.NumberofIPOsandRMsover2009-2019

Figure3.NumberofIPOsandRMsover2009-2019

Asforstartingin2017,thereisachangeininvestmenttargetinthestockmarket.Unlikebefore,smallandmedium-sizedstockpricesfell,buttheindustry'sleadingstockshaverepeatedlysetnewhighs.Atthesametime,marketpolicyenvironmenthasalsochanged,IPOspeedingup,registrationsystememerging,backdoorlistingstandardsbecomingstricter.TheseallhavegreatlyshrunkthenumberofRMsandIPOs.Overall,excludingthesuspensionsin2013causingthenumberofIPOsiszero,wecanconcludethatbackdoorlisting,asanalternativetoIPO,iscloselyrelatedtothecontrollingdegreeofIPOissuancebyCSRC.

Inadditiontothechangeinthenumberofcompaniesbyyear,wealsocollectedtheindustrydistributionofallRMcompaniesandIPOsfrom2009to2019asTable2andFigure4presentedbelow.Allthese18industriesarefollowedbytheinstructionofAguidetotheclassificationoflistedcompanies(2019)andallthedataarefromWIND.

Table2.IndustryDistributionofRMsandIPOsfrom2009-2019

WecomparetheindustrydistributionofRMfirmsandIPOfirms.WefindIPOfirmsarehighlyconcentratedinthemanufacturingindustry.Among2091IPOsfrom2009to2019,63.99%aremanufacturingfirms;amongfirmsintheRMsample,only32.58%aremanufacturingfirms.ManufacturingfirmstendtohaveSOEbackground,andtheycanbematureandstable,consistentwiththepreferenceofCSRCIPOpolicy.Incontrast,4.52%ofRMfirmsareintherealestateindustry,whilethisnumberforIPOfirmsis0.67%.Asimilarpatternisfoundforleisureandentertainmentindustry.TheseresultsagainreflecttheCSRCIPOpreference,inthatfirmsintheseindustriesoftenfacehigherscrutiny.Finally,RMfirmsalsohaveahigherconcentrationintheutilityindustrythanIPOfirms.Thisfindingmaybebecauselocalgovernmentsoftenownutilities.Whenalistedcompanycontrolledbyalocalgovernmentisfloundering,thelocalgovernmentismotivatedtokeepthelistingstatusinthearea.Astheylookforalocalcandidateforlisting,utilityfirmsbecomenaturalcandidatesbecausetheyhavestableearnings,canaffordtopayfortheshell,andarecloselysupervisedbylocalgovernment.

Figure4.IndustrydistributionofRMsandIPOsfrom2009-2019

ShellValueAnalysis

CalculationofShellValue

AfterhavinganobjectiveunderstandingofreversemergerandIPO,wecaneasilyfindthatthehugeshellvalueisanimportantphenomenonintheChinesemarket,andithasevenexertedaconsiderableinfluenceonthepricingofstocks.Itisofgreatsignificancetocalculatetheshellvalueofthecompanyandstudytheperformanceofthecompanyfromtheperspectiveofconsideringtheshellvalue.Asmentionedabove,therearerelativelyfewquantitativemethodsforcalculatingshellvalue.Inthispaper,theconceptofExpectedShellValueproposedbyCremers(2009)andCharlesLee(2017)isadoptedtomeasuretheshellvalueinthemarket.Listedcompaniesinthesecondarymarketenjoyapremiumotherthantherealvalueduetothepossibilityofbeing“shell”,whichcanberegardedasthecurrentexpectationoftheshellvaluethatthecompanymayrealizeinthefuture.Becausethiskindofshellvalueisbasedontheexpectedprobability,itmeansthatallthelistedcompaniesinthemarkethaveshellvaluebydefault.Inthefuture,companieswithhighershellvaluewill