Backing into the U.S.: A Study of Chinese Reverse Mergers

In an effort to gain access to United States capital markets, a “reverse merger” (RM) allows a private company to assume the exchange listing of a public company, without the additional time, risk, expense or SEC scrutiny associated with a traditional IPO. RMs initiated by Chinese firms represent the vast majority of foreign RM transactions. This paper studies these Chinese firms’ characteristics and relative operating performance prior to coming to the U.S. and after being listed on a U.S. stock exchange from 2004-2010 and find they are, on average, 8.4 years old, privately held, profitable, mid-cap and profitable. When compared to U.S. RMs over the same period, Chinese RMs are significantly larger, grow assets faster, hold more insider stock, have more institutional stock interest and enter the U.S. at higher level stock exchanges.

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