http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2562274&download=yes

Bait and Switch: How Do Chinese Firms Use Proceeds from Seasoned Equity Offerings

Hong Bo University of London – School of Oriental and African Studies (SOAS)

Zhongnan Huang University of London – School of Oriental and African Studies (SOAS)

Elmer Sterken University of Groningen – Faculty of Economics and Business; CESifo (Center for Economic Studies and Ifo Institute)
January 31, 2015
CESifo Working Paper Series No. 5198

Abstract: 
We reveal motivations of Chinese firms for issuing Seasoned Equity Offerings (SEO) by examining why firms change the use of SEO proceeds and how they use unspecified SEO proceeds. Using 533 SEOs issued by Chinese firms during 1999-2006, we find that firms do not use unspecified SEO proceeds on capital investment regardless of the nature of controlling shareholders. We find that if the controlling shareholder is the state, then the firm uses unspecified proceeds to stockpile cash; if the controlling shareholder is a parent state-owned enterprise, then the firm uses unspecified proceeds on retiring debt and on related party transactions.