This is a too big question. But I have thought this thing for quite a while, and want to share my thoughts. A few weeks ago I was watching the “Boss Town” program at China-CBN, the host posed this exact question to the founder of Qiao Xing (Nasdaq: XING), Mr. Wu Ruiling: why do you go to Nasdaq considering the overhead of compliance (Sarbane-Oxly etc.)?
Fair question. Mr. Wu shared one reason: when a company grows to a certain stage, it’s better to have more than one boss (owner): other minority owners can contribute to the development of the company.
I think besides “better corporate governance/management”, there are at least two reasons: 1) To raise the money (capital), 2) To raise the company profile. These two reasons fit well with the recent Chinese IPOs in last Fall: New Oriental (EDU), Home Inns (HMIN), and Mindray (MR). Let’s explain one by one.
EDU: fits both. EDU needs the money to expand, and it also needs “listed in NYSE” to market itself as a prestige private education and training company in China. In the consumer world, anything “made in USA”, “made in Japan”, “made in Germany” are considered good. “Listed in New York Stock Exchange” is much better compared to “pass out flyers” in metro station. By doing this, it also helps to discuss relationship with western education partners (see, we are a US listed company, not a little known Chinese company).
Home Inns (HMIN), fits both reasons, very similar to EDU. “Listed in Nasdaq” is a very good marketing tool to woo more consumers.
Mindray (MR), actually MR (the company) did not need the money that badly (some VCs wanted to cash out though, more about that later). They have enough cash flow to fund itself. But they need this “listed in NYSE” to help them to expand globally. Note the international market is their main growth driver going forward.
These are all good reasons: raise capital and raise brand awareness. But there is another reason people usually know but the companies seldom mention upfront: insiders want to cash out. If a company does IPO solely for the purpose of that, buyers should be very careful. This is no longer a win-win situation as I described above: it’s “insiders win”, “investor lose” game.