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This paper examines the impact of stock ownership segmentation in listed companies on theinvestment banking business in China. Assuming that holders of non-floatable shares tryto maximize book value of shares, we explain why controlling shareholders will prefer toraise equity financing through the higher-priced public equity market. We explain whymergers and acquisitions of listed companies on the exchanges are all unlikely to be seen inChina. Finally, we shed light on a commonly observed sequential financing pattern inChina why Chinese firms restructure through a process of mergers and acquisitions andthen refinance through the equity market. Our results show that the Chinese investmentbanking business is severely constrained in the direction of equity financing.
This paper examines the impact of stock ownership segmentation in listed companies on the investment banking business in China. Assuming that holders of non-floatable shares try to maximize book value of shares, we explain why controlling shareholders will prefer toraise equity financing through the higher-priced public equity market. We explain whymergers and acquisitions of listed companies on the exchanges are all unlikely to be seen in China. Finally, we shed light on a commonly observed sequential financing pattern in China why Chinese firms restructure through a process of mergers and acquisitions and how refinance through the equity market. Our results show that the Chinese investmentbanking business is severely constrained in the direction of equity financing.