Merit-based regulation of new shares issuance and financing constrains of listed companies in China

Based on the samples of Chinese companies listed on Hong Kong stock market and those matched companies listed on mainland stock market from 2002 to 2009, this paper empirically studies the different influences on the financing constrains faced by the listed companies under the merit-based regulation and the disclosure-based regulation of new shares issuance. The results show that the companies applying for being listed on Hong Kong stock market generally face with stronger financing constrains before their initial public offerings than those companies applying for being listed on the mainland stock market. Among the companies applying for being listed on Hong Kong stock market, the non state-owned companies have the strongest financing need before their public issuance. The study states that the merit-based verification procedure has been a huge obstacle to the companies, especially the non state-owned companies in China to finance on the mainland stock market, and also has a negative impact on the financing function of China's stock market. ©, 2014, Press of Tsinghua University. All right reserved.