Study On The Influencing Factors And Results Of Major Shareholders’ Trading Behavior In China

After the Stock Right Decentralized Allot Revolution (SRDAR), two thirds of the major shareholders’stakes are entitled to be traded in the stock market. The major shareholders who serve as material investors can participate in the market through the strategies of holding, purchasing and selling. The increasingly frequent trading behaviors of major shareholders, on one hand, have positive effects on changing the structure of investors, optimizing capital allocation as well as the disclosure of information; while, on the other hand, these behaviors reduce to the cascading dropdown of the stock prices and continuous violation of the extant law, which have drawn heated debate and been given close attention by the supervisors. The trading behaviors of major shareholders followed by the SRDAR are unique in China. By far, no study has given complete and systemic study on trading behaviors of major shareholders. Therefore, a comprehensive and objective research on the working mechanism and economic efficiency of these behaviors is highly needed not only by the theoretical field but the supervisors.From this point, this dissertation starts with the insider role of the majority shareholder, analyzes their incentives of trading behaviors and aims to examine the economic results of these behaviors.The dissertation falls into six chapters.Chapter1begins with the institutional background of the major shareholders’ trading behaviors and raises the questions:what are the incentives of these trading behaviors? What special information do these behaviors transmit to the external investors? What effects will these behaviors have on the market efficiency? Based on these researches, what precautions should be taken to improve the regulatory regime? Then, chapter1states the research significance, research ideas and outline of this paper. Besides, chapter1also makes clear definitions and comparison of the major shareholders’ trading, insider trading, and clarifies the study objects.Chapter2conducts the theoretical and literature review. Based on the review of extant researches on insider trading, equity structure, corporate governance and information content of stock price, this chapter points out the shortcomings of extant researches, builds up the theoretical foundation of the empirical study.Chapter3starts with the insider role of the major shareholders. First, this chapter analyzes that in the context of China’s stock market which has the characteristics of information asymmetry, lack of regulation and market speculation, the major shareholder as an "economic agent" tends to make profits by taking advantage their private information. In theory, factors like information advantage, adverse operation are all important incentives that drive their trading behaviors. Therefore, based on these theories, three hypotheses need to be verified:information advantage of majority shareholders, adverse operation, and information hierarchy. Then, by developing regressional model and robust test, this paper finds that information advantage and adverse operation significantly affect controlling shareholders’trading behaviors, therefore, their trading behaviors have the function of information transmission which could alleviate the problem of information asymmetry, correct the market mispricing and curb the irrational volatilities of the stock market, while the non-controlling shareholders’ trading behaviors are generally influenced by irrational factors like short-term market valuation and volatility, which gives support to the information hierarchy hypothesis.Chapter4begins with the shareholders’identity of controlling shareholders, analyzes their trading behaviors from equity structure and "tunneling" factors. The first part points out that in China, the listed corporations have the equity structure of "one share dominates exclusively", and the controlling shareholder will make decisions on whether to change their stake by balancing the revenues and costs of holding stakes. Theoretically speaking, equity structure is an important driving force of major shareholders’ trading behaviors. Then, by developing linear regression model, this paper finds that the net purchase ratio of controlling shareholder is negatively related to the degree of ownership concentration, and positively related to equity restriction ration, as for the non-controlling shareholder, the net purchase ratio has positive relation with equity concentration, and negative relation with equity restriction ration. The results show that equity structure has totally different influences on the trading behaviors of different types of shareholders; furthermore, the effects of their trading behaviors on the equity are also different. The second part firstly analyzes that in China, the level of corporate governance is low, the law protecting the investors is still far from satisfaction, the degree of tunneling will affect a company’s future performance, and it will also affect shareholders’wealth and decisions. In theory, the degree of tunneling is an important factor affecting the trading behaviors of the shareholders; then the empirical research finds that the net purchase ratio of the controlling shareholders is negatively related to the degree of tunneling, while as for the other shareholders, their trading behaviors are not affected by the degree of tunneling, the results show that the trading behaviors of the controlling shareholders transmit tunneling information to the market, it to a certain extent shows that the controlling shareholders have special information advantage, this advantage will inversely exert effects on the level of corporate governance and the efficiency of stock market.Chapter5examines the effects of major shareholders’ trading behavioe on the information content of stock price. First, chapter5generalizes the information transmission mechanism in the formation of stock price and discusses the process through which the trading behaviors will affect the information content. By rising up hypotheses, developing simultaneous equations, test the effects of trading behaviors on the stock price synchronicity. The results show that there exists negative relationship between the strength of major shareholder trading and the stock synchronicity which means that trading behaviors could decrease stock synchronicity. The robust test shows that the change of synchronicity is due to the trading behaviors other than the noises, which verifies that major shareholder trading could transmit special corporate information to improve the stock synchronicity.Chapter6is the conclusion of the whole paper, besides, this chapter also discusses the policy suggestions to regulate the trading behaviors of major shareholders and prospect of future research.