A case study of the relocation of place of domicile of listed companies in Hong Kong : is it a good decision?

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A case study of the relocation of place of domicile of listed companies in Hong Kong : is it a good decision?

 

Author: Cheung, Wing-kong
Title: A case study of the relocation of place of domicile of listed companies in Hong Kong : is it a good decision?
Degree: M.B.A.
Year: 1994
Subject: Domicile of corporations -- China -- Hong Kong -- Case studies
Hong Kong Polytechnic -- Dissertations
Department: Dept. of Management
Pages: vii, 91 leaves : ill. ; 30 cm
Language: English
InnoPac Record: http://library.polyu.edu.hk/record=b1152535
URI: http://theses.lib.polyu.edu.hk/handle/200/4605
Abstract: The approaching political hand-over of Hong Kong to China in 1997 has long been worrying many people. To hedge against future risks, many a locally listed company has changed its place of domicile to tax havens following the first relocation of Jardine Matheson in 1984. Watson Electric* was among the pioneers to switch its domicile to Bermuda. The major objective of this project is to explore if changing domiciles is a good decision for Hong Kong listed companies by studying the Watson's case. The top management of Watson was heavily involved in making the strategic decision to implement the group reorganisation which caused a change of corporation domicile. In view of the sensitivity of the relocation issues, there required a balance between confidentiality and corporate planning effectiveness. The achievement of a strategic perspective enhanced the implementation of the complicated relocation procedures. After relocation, Watson is entitled to several acclaimed advantages which are not available to Hong Kong incorporated companies. As a Bermudian company, Watson is not levied in Hong Kong the capital fee of 0.6% payable on the increased amount of its authorised capital. Besides, it has the tax exempt status granted by the Minister of Finance of Bermuda which facilitates the tax planning of the group. Besides tax benefits, the redomiciling operation gives Watson the advantage of assets protection because most of its assets can be put outside Hong Kong beyond the reach of any potential expropriation. Watson also enjoys most of the benefits of a share repurchase including a contingency plan to guard against hostile takeovers and support the share price in a depressed stock market. Indeed, the results of the empirical analysis show that investors are generally in favour of the relocation decision as can be seen from the positive impact on stock returns and trading volume after the announcement. A form of political insurance for Hong Kong listed companies seems necessary especially when the recent Sino-British relationship is not improving. The major disadvantage of relocation, should the decision turns out to be wrong, is the loss of premium representing merely the management time and several million dollars to be incurred. Remark * Watson Electric Holdings Limited is a nickname which is used for the sake of confidentiality.

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