Abstract

Keywords

۱٫ Introduction

۲٫ Basic characteristics of new economy companies

۳٫ Financing models of new economy company and related accounting standards

۴٫ Solutions to disputes about the financing instruments of new economy companies

۵٫ Conclusion

Declaration of Competing Interest

Appendix A.

References

Further reading

Abstract

New economy companies often use convertible and redeemable preferred shares with equity and debt characteristics as financing tools to reduce risk during their early stages of growth. According to relevant accounting standards, such preferred shares should be classified as financial liabilities and measured at fair value, with changes in fair value recognized in profit or loss. This can lead to confusing financial information: the better a company’s development prospects, the higher its redemption or conversion price and loss, which can result in a large negative net asset value. A successful initial public offering, however, could offset large losses and negative net asset value. Following the development of accounting standards, this article thoroughly analyzes various proposals to modify relevant accounting standards and eliminate confusing information. This article also proposes possible problems and solutions as a reference for accounting standard setters and the various stakeholders in new economy companies.

۱٫ Introduction

New economy companies, such as information technology, biomedicine, and big data companies, have flourished since the 2008 financial crisis. In 2018, the new economy industry accounted for 16.1% of China’s GDP, becoming the new engine of China’s development. In the same year, the Shanghai Stock Exchange launched the Sci-Tech Innovation Board, and the Hong Kong Stock Exchange relaxed the conditions for the listing of biotech companies to provide a better financing environment for new economy companies. Also in 2018, the China Securities Regulatory Commission (CSRC) released a document outlining new rules for overseas-listed red-chip companies that return to the domestic market for listing. Recently, the CSRC issued another document that lowered the value threshold for returning companies but emphasized that they should have independent R&D, internationally leading technology, strong technological innovation capabilities, and other competitive advantages. The Shenzhen Stock Exchange has begun to reform the second-board market to serve growth-oriented innovative and entrepreneurial companies and support the deep integration of traditional industries with new technologies, industries, formats, and business models. In this paper, we examine whether current accounting standards meet the information-communication needs of new economy companies and provide users of financial statements with enough information to make informed investment decisions and contribute to China’s economic growth.