Financial constraints and investment thirst in Chinese reverse merger companies

Abstract

Abstract Using a hand‐collected data set of Chinese reverse mergers ( RM ) between 2006 and 2015, we find that financial constraints are more serious and investment thirst higher for RM companies as compared with initial public offering ( IPO ) companies. For state‐owned enterprises ( SOE s), listing via a RM or an IPO does not impact the level of financial constraints post‐listing, while SOE RM s have higher investment thirst than SOE IPO s. By contrast, non‐ SOE RM s are under more financial constraints and have higher investment thirst than non‐ SOE IPO s. These differences are not presented during the 4 Trillion Yuan stimulus period between 2008 and 2010.