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Reverse Merger, Shell Value and Resource Allocation Efficiency
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TitleReverse Merger, Shell Value and Resource Allocation Efficiency  
AuthorQu Yuanyu,Shen Tao and Wu Weixing  
OrganizationTsinghua University; Research Center of Applied Finance;; 
Key WordsShell value; Reverse merger; Resource allocation efficiency; Corporate policy 
AbstractChina Securities Regulatory Commission imposes strict restrictions on IPO, giving rise to the shell value of the listed firms in China. With a comprehensive hand-collected reverse mergers (RMs) sample in China, we are able to identify the shell value of listed firms and find that it has a size of 3.3 billion RMB. We then explore the determinants of shell value and the probability of being a shell. We define a firm’s expected shell value as the product of the shell value and the probability of being a shell, and find that on average the expected shell value is about 1.2% of the total market value. Using a policy shock in 2016, we show that our shell value measure indeed captures the shell value content of the listed firms. Lastly, we find that the expected shell value significantly affects corporate policies. Firms with higher expected shell value tend to invest less, finance less, and payout less. The existence of shell value largely reduces the resource allocation efficiency of the capital market. 
Serial NumberWP1208 
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