The Influence Of Control Right Transfer On The Interests Of Minority Shareholders

This paper studies the transfer of control which affects the interests of minority shareholders, the mainly purpose of this study is to promote the operation of the securities market and protect the interests of minority shareholders. Listed companies will encounter mergers and acquisitions in the development inevitably. Through M&A, the allocation of resources could be optimized, the system of internal defects could be resolved, corporate governance structure could be improved, and development of the securities market would be promoted as well. With the development of the listed companies and the securities market, the most important meaning is to protect and promote the interests of minority shareholders. Although the proportion of minority shareholders is much lower than the controlling shareholder, with much more quantities, minority shareholders are the foundation of the entire stock market. Control right transfer, as a major economic event of listed companies, affects the interests of minority shareholders directly. Hence, it furthered the study on the effects of control right transfer to the minority shareholders’ interests, so as to carry out effective supervision, guarantee the control right transfer regulated and prevent the interests’ damage to minority shareholders.In this paper, it defined control right transfer as the target company’s controlling shareholder changes, including other economies outside of the target company become the new controlling shareholder by acquiring shares and the target company’s other shareholders become the new controlling shareholder by shares’ trade. This article focuses on the influence of control right transfer on the interests of minority shareholders as the main line, using the normative research and empirical study as this study’s research technique. The paper is divided into three levels. First is the theory analysis, including the introduction, literature review and theoretical basis of the control right transfer; Secondly, it would do empirical analysis on the impact of control right transfer towards the minority shareholder’s interest, including the content of interests changes before and after transfer of minority shareholders, the factors affecting transfer and the factors affecting minority shareholders’ interests; Last, according to the former analysis, it summarized the conclusions of this study and put forward several practical policy recommendations.On the basis of theoretical study, it made an empirical study on the influence factors of control right transfer first of all. Through research, minority shareholders would have a clear understanding of the causes of the control right transfer and it provides reasonable investment advice for minority shareholders to prevent damage to the interests of minority shareholders. Also, it can help to resist a hostile takeover and promote government regulation, even better protect and promote the interests of minority shareholders. The article selects the corporate governance and financial characteristics to research the factors which affect listed company’s control right transfer. Corporate governance has played a decisive role in a company’s development, which can affect all aspects of the company directly. Financial characteristics reflect the basis development in the past and on behalf of its development capacity in the future. The empirical analyses chose Chinese A-stock listed companies between 2007 and 2012 which transferred control as the sample. It paired close total assets sample and same industry sample, and use Logit model to contrast the influence factors of control right transfer. In the corporate governance factors, the increase of the first majority shareholder ownership and management shareholding will reduce the possibility of control right transfer, and the growth of the equity balance degree and executive compensation will increase the possibility of control right transfer; In financial characteristics, the increase of the ROA, NCFPS and primary business will reduce the possibility of control right transfer, however, the increase of the innovation ability promotes the happening of the control right transfer. Hence, the research conclusions show that corporate governance and financial characteristics can significantly affect the listed company control right transfer.Based on the research on the factors of control right transfer, the interests of minority shareholders’ and the influence factors between the shifts were studied. The control right transfer will have a significant impact on the target company and can be a brand new development opportunity, which directly changes the company deals in many aspects, such as decision making and governance structure. Control right transfer can bring positive announcement effects on the stock market and make the minority shareholders obtain abnormal returns. This article uses event study method to measure how much profit minority shareholders have made. The window period is from 20 announcement days before the transaction to the 20 announcement days after the transaction. During the window period, minority shareholders obtained the AAR near 0 mostly, over the control right transfer announcement day it reached the peak of 1.28%.Minority shareholders obtained rising CAR during the window period, it peak at 8.15% in the day 16 th, and minority shareholders of Shanghai A-stock listed company obtained higher CAR. Within [20, 20] window period, minority shareholders can get 7.57% CAR, which is less than the average CAR in developed country. In the window period [-20,-1], minority shareholders get CAR of 5.24%, accounting for 69.2%.of the whole window period. This suggests that, minority shareholders have made positive CAR from control right transfer, but lower than the average CAR in developed country; Before the transfer control announcement day, there is a information leakage and insider trading. This chapter also analyzed the influence factors of the transfer control to the interests of minority shareholders, such as the change of chairman or the board of directors or general manager, internal transfer, privatization of state-owned enterprises, the acquirer cash payment and higher net profit margin on sales, can promote the interests of minority shareholders.The decreasing interest occupation from controlling shareholder to minority shareholder and increasing earnings for minority shareholder are the result of the control right transfer that the target company pursues. In this paper, the controlling shareholder of target company’s capital takes up is made to measure the amount of controlling shareholders’ encroachment on minority shareholders’ interests, compare the controlling shareholder’s encroachment behavior among the previous year, the current year and a year later of the control right transfer. Overall, the controlling shareholder after the transfer control will reduce encroached on the interests of the target company, which turned the encroach into support. After concrete analysis, it changes slightly in the number, which a large part of the target company remains encroaching after control transfer. I select earnings per share to measure minority shareholders earnings after the transfer, and turned out to be year-on-year earnings per share have been increased significantly. However, there are still parts of companies earnings per share getting decreased after the transfer. Hence, although the transfer of control brings profits to minority shareholders, there still exists benefit damage. The chapter also analyzed interests factors affecting minority shareholders after the control right transfer, the changes of the target company executives’ shareholding can promote the interests of minority shareholders. Furthermore, there are significant positive relationships between the market value and the interests of minority shareholders, the proportion of equity of acquirer and the interests of minority shareholders, so as the company growth capacity and the interests of minority shareholders. However, the target company’s general manager and the chairman being one person will reduce the interests of minority shareholders.According to the conclusion, the suggestions are listed below: First, the control market should be improved and guide the buyers to acquire the control on the secondary market directly, less government action to the market so as to make the market healthier; Second, strengthen the before-supervision of control right transfer, consummate the announcement, strengthen the information disclosure and regulatory review and other acts to perfect information disclosure system by the government departments as well; Third, strengthen supervision by the legal supervision, the social supervision,supervision by public opinions and etc; Last but not the least, enhance the check and balance ownership structure,make independent director more important, make minority shareholders’ opinions more important and so on.