HOUSTON – (April 3, 2014) – There has been much talk recently about Alibaba, the Chinese e-commerce giant that recently abandoned the Hong Kong exchange and is preparing for a U.S. initial public offering (IPO). What will the arrival of Alibaba mean for U.S. capital markets and the domestic financial community and what does it say about the Chinese economy?
Two experts on IPOs and Chinese entrepreneurship at Rice University’s Jones Graduate School of Business can weigh in on the dynamics surrounding the Alibaba IPO: Yan Anthea Zhang, a professor of strategic management, and Robert Hoskisson, the George R. Brown Professor of Management.
Zhang said Alibaba chose to seek a U.S. listing because of the weak Chinese stock market and the stronger governance required for companies operating in the U.S. “The Chinese stock market did not do well in the past several years,” she said. “It is probably one of the worst-performing stock markets in the world. This is really surprising if you look at the tremendous economic growth of China in the same time period. One of the reasons for this weakness is the lack of governance and lax monitoring of companies on the Chinese stock exchange.”
Zhang said another reason for the U.S. listing is that it will help Alibaba familiarize itself with the U.S. market and allow U.S. investors to acquaint themselves with the company, which will enable Alibaba to become a global company. In addition, she said, the listing will allow the founding members of the company to maintain control. “Even after the U.S. IPO, the insiders will still have a majority of the voting power,” Zhang said. “That would not be allowed on Chinese stock exchange.”
Hoskisson said Alibaba has an advantage by coming after the Facebook and Twitter IPOs. “They’ve (Alibaba) been looking at what’s happening recently with big firms in this area, like Facebook and Twitter,” Hoskisson said. “This is IPO is huge. It’s Amazon. It’s eBay. It’s Facebook. You’ve had these two similar ventures and here’s an opportunity.”
Hoskisson said Alibaba will likely not follow Facebook’s lead, which overpriced its IPO, after which the company’s shares lost much of their value. ”For a new venture, that (overpricing) could be life or death,” he said.
Yahoo Inc.’s 24 percent stake in Alibaba will have a positive impact on the IPO, Hoskisson added. “There’s a lot of unknown information about Alibaba,” he said. “Yahoo’s stake helps with credibility.”
Rice University has a VideoLink ReadyCam TV interview studio for media who want to schedule an interview with Zhang or Hoskisson. ReadyCam is capable of transmitting broadcast-quality standard-definition and high-definition video directly to all news media organizations around the world 24/7.
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