Listed companies in China are trending toward a focus on their intrinsic value to manage their market capitalization, according to a report by the China Securities Journal today.
As supervision over the financial market irregularities is tightening in China, conventional means for market capitalization management are nowadays no longer as effective as before, e.g., equity incentives, employee stock ownership plans, and mergers and acquisitions, etc.
A company's share price used to rise as long as it pursued an acquisition. Today, as the market behaviors turn toward being more rational, an acquisition alone is not enough to boost stock prices. What matters is whether this transaction really shores up its business, according to Mr. Lao Zhiming, a senior manager at the Huatai United Securities Co., Ltd.
As early as 2014, China's securities watchdog had stepped up its crackdown on market manipulations, which often occurred under the name of market capitalization management.
Such irregular behaviors required a significant amount of capital to succeed, which often originated from the use of leverage. Nowadays, such maneuvers have been hamstrung by the government's efforts to deleverage the domestic financial market, as commented by Mr. Xiang Lei, a senior manager at the Tianan Property Insurance Co., Ltd.
Along with this change, many listed companies at home have been striving to improve their business performances.
Last year, investors were shifting their attention to the underlying business operations of listed companies, prompting more and more of them to meet expected business performances, according to Mr. Xiang.
One typical example was a company in southwestern China, which held over 100 roadshows in 2017 to brief investors on its business operations. In the second half of 2017, its market capitalization had doubled.
"Our market capitalization surged last year thanks to our enhanced intrinsic value, which hinged on better business performances along with the recovery of the market. Building on this, we were just working to 'make known' our value," said the Vice President of this company.
As supervision over the financial market irregularities is tightening in China, conventional means for market capitalization management are nowadays no longer as effective as before, e.g., equity incentives, employee stock ownership plans, and mergers and acquisitions, etc.
A company's share price used to rise as long as it pursued an acquisition. Today, as the market behaviors turn toward being more rational, an acquisition alone is not enough to boost stock prices. What matters is whether this transaction really shores up its business, according to Mr. Lao Zhiming, a senior manager at the Huatai United Securities Co., Ltd.
As early as 2014, China's securities watchdog had stepped up its crackdown on market manipulations, which often occurred under the name of market capitalization management.
Such irregular behaviors required a significant amount of capital to succeed, which often originated from the use of leverage. Nowadays, such maneuvers have been hamstrung by the government's efforts to deleverage the domestic financial market, as commented by Mr. Xiang Lei, a senior manager at the Tianan Property Insurance Co., Ltd.
Along with this change, many listed companies at home have been striving to improve their business performances.
Last year, investors were shifting their attention to the underlying business operations of listed companies, prompting more and more of them to meet expected business performances, according to Mr. Xiang.
One typical example was a company in southwestern China, which held over 100 roadshows in 2017 to brief investors on its business operations. In the second half of 2017, its market capitalization had doubled.
"Our market capitalization surged last year thanks to our enhanced intrinsic value, which hinged on better business performances along with the recovery of the market. Building on this, we were just working to 'make known' our value," said the Vice President of this company.
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