Choice between backdoor listing and regular initial public offering in China

Abstract: The essay examines the factors that affect the private firms’ choice to go public by backdoor listing (BDL) or regular initial public offering (IPO) in China. The relevant ex-ante factors are tested by 104 BDL firms and 449 IPO firms. The results indicate significant regulation impact to the firm’s decision. In the meantime, it is unclear that the review standard of firm’s profit affects the firm’s choice. The BDL is more prevalent at a hotter market, while IPO firms have less time flexibility because of the regulation. Due to the unclean shells and the intention of taking over the reorganized companies, the sizes of BDL firms are significantly larger than those of IPO firms. With a higher debt ratio and higher ratio of research and development expenditure, the firms are likely to choose BDL. In addition, the asset liquidity and intangible asset ratio have less influence on the choice, although the firms with higher profitability tend to choose BDL in IPO periods.