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Study on the Determination of Exchange Ratio of Chinese Listed Corporations’ Exchange Combination

Author: XiongZhu
Tutor: PengZuo；BiZuo
School: Southwestern University
Course: Accounting
Keywords: Exchange Combination Exchange Ratio Value Evaluation Option pricing
CLC: F832.51
Type: Master's thesis
Year: 2006
Downloads: 32
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Abstract

In the late, 1920s, global enterprise began the fifth wave of combination. One of the most important characteristic of this wave is that stock and cash replaced the way of pure cash. Given that countries loosened their control over monopoly, combination brought about the prosperity of exchange combination. Now exchange combination becomes the most basic and essential way. Compared with western’s mature capital market, exchange combination is still at the primary stage in china. The first case in our country is in 1998 when QINGHUA TONGFANG combined LUY1N ELECTRIC. But it is not the exact exchange combination and covered with heavy administrative order. In 2004, NO.1 Department Store absorbed HUA LIAN CO., which is the first case of true exchange combination in china. In these cases, it is easy to find whether the combination can succeed depends on a scientific and practical scheme and whether most of shareholders accept the scheme or not. While in the scheme, the key point representing the interests of shareholders is the fix of exchange rate. Thus, the exchange rate should be scientific and accurate.At such an environment, the paper is some correlative study of profit quality of china listed companies by canonical and empirical measures in this essay.The thesis leads to the following conclusions:(1)Option price theory provides new way for the estimate of enterprise in the course of exchange combination. At present, the usual way is discounted cash flow and relative comparison. But these two ways has obvious disadvantage and is not practical. So this article adopts option pricing theory. It treat the stock as call options and debt’s book value represents its’ exercise price. While the deadline of debt can be considered as the deadline of option.(2)The article makes use of L-G model to fix the exchange rate. It revises the case of two public companies in our capital market to estimate the reasonable exchange rate. If RAW WATER CO. wanted to combine LING QIAO CO., they should adopt the same standard to make both stockholders accept it and finally lead to fix reasonable exchange rate. In the case that No.1 department Store combined HUA LIAN CO., although both sides have a lot in common, it’s easy to find HUA LIAN CO. has advantage over NO.1 department store. So the inner value of HUA LIAN’s stock should be higher than NO.1 department store. Then the exchange rate should be higher too. But in this combination, the low exchange rate leads to successful combination. It has two key factors. One is the actual controller is BAI LIAN CO. The other one is that two companies are located in Shanghai and government helps too. But BAI LIAN’s success is just the case. We should make use of revised exchange rate to get the objective and scientific rate, based on the company’s value.(3)The fix of exchange rate matters the interests of both sides’ shareholders. In china, the first exchange combination case is between RAW WATER CO. and LING QIAO CO. But because they didn’t offer a reasonable rate, the combination did not succeed.(4)Our exchange combination change gradually from government-driven to market-driven. In 1998, the State Council stopped equity flow, which then caused the wave of exchange combination. In this process, government played an important role. In 2004, No.1 Department store combined HUA LIAN CO. successfully. But this combination wasn’t completely market-driven and government helped a little.Because there are still lots of difficulties and obstacles such as weak secondary market, I make the following suggestion:1、Build and perfect scientific rules and regulations of exchange combination.2、Improve securities market and build healthy environment for exchange combination.3、Enhance the intermediary.4、Inform the shareholder of relative information.5、Perfect accounting system.6、Develop ways of securities take-over.

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CLC: > Economic > Fiscal, monetary > Finance, banking > China's financial,banking > Financial market
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