Stairway to heaven or gateway to hell? A competing risks analysis of delistings from Hong Kong's Growth Enterprise Market

A competing risks hazard model is employed to examine the reasons for Hong Kong's Growth Enterprise Market (GEM) companies transferring to the Main Board (MB) in the period 2000-2012. In our sample during the period 21 companies or 15% of the original stock moved up to the MB. The modal life expectancy of a GEM company was about eight years. Companies that did not move up to the MB were at a small risk of delisting due to long term suspension or liquidation, but the great majority just remained where they were. Regarding the factors behind transfer to the MB, of the 129 companies listed on the GEM in the period, we find that companies with higher net profit and greater product market power were more likely to graduate in the following year. However, companies with lower growth, higher financial risk and those audited by more prestigious partnerships were more likely to delay transfer to the MB by another year and hence more likely to liquidate. We also find evidence that VC backing is economically important: it increases the hazard of promotion six-fold. Thus, a listing on the GEM in this period was, for a significant minority of companies a 'stairway to heaven' and for much smaller proportion a 'gateway to hell'.