The life cycle of initial public offering companies in China

Abstract

Purpose

The purpose of this paper is to identify the extent to which the company's post- initial public offering (IPO) outcome varies, along with the determinants of the post-IPO outcomes.

Design/methodology/approach

The authors use Cox proportional hazards models to examine what determines the company's post-IPO transition to one of the classified outcomes, delisting, acquisition due to strong performance, and acquisition due to weak performance. The authors develop models taking in a range of information concerning pre-IPO characteristics, offering characteristics, financial indicators, company specifics, industry features, and corporate ownership and governance.

Findings

Delisting is predominantly influenced by the company’ pre-IPO operating performance, as well as financial indicators and governance structure at the time of the IPO. Sound governance structure and good financial standing of the company aid it to achieve its goal. Mergers and acquisitions (M&As) of both forms are distinguished most significantly by ownership structure and industry features, which is consonant with the position that M&As are majorly motivated by social concerns and corporate control considerations. Centrally, corporate evolution is jointly shaped by market force and state control.

Practical implications

The findings can inform public policy decisions. There is a case for gradual introduction of institutional changes which facilitate, regulate, and monitor orderly market operations in line with the market mechanism and sound corporate governance.

Originality/value

The study is among the first efforts to examine what determines the company's transition to one of the post-IPO states following the IPO in China's stock market.

Citation

Liu, J. and Li, D. (2014), "The life cycle of initial public offering companies in China", Journal of Applied Accounting Research, Vol. 15 No. 3, pp. 291-307. https://doi.org/10.1108/JAAR-12-2013-0111