The Game Theory In Market For Corporate Control-The Regulation Structure In Chinese Market For Corporate Control

The substance of the corporate control rests on the decisive power captured by insiders on significant corporate decisions. As the trading place for this special commodity-market for corporate control, is a place where interest parties, by various means to gain dominant shareholdings or proxies for voting rights, compete for control rights. Interest parties referred might be either holders of common shares, outsiders, or the combination of both. Viewed from the trading activities, market participants mainly belong to two groups, incumbent controlling party and potential tenders for control rights.The existence of the future threaten imposes significant pressure on the dominant body in place whereby often bringing out improvement in management practice and greater value for interest parties, which is the most common way that market for corporate control realizes its power as an outside discipline force. Of course, other means such as collecting voting rights are also widely accepted. However, the author in this article mainly concerns the market for corporate control rather than the control rights itself, and the focus lies on the control rights under merger situation.Two ultimate goals, "friendly" or "hostile", behind the transference of control rights could often be identified. With respect to the behavioral attributes of merger among listed companies recent years, distinguishing from the usual interpretation of "friendly" and "hostile" from the insider standing point, an model based on the underlying incentive has been established. During the alter of control rights, the value of control rights mainly derives from the specific investment on managerial function. Under the simple cost-benefit framework, with large input on managerial function, the resulting benefit would be slim, or even be negative, no matter which way to accomplish; on the other hand, relative small input is expected to bring the improvement in efficiency following the change of control entity, which is usually not affected by the means of transference. However, other aspects will still impact on the cost-benefit relationship.The market for corporate control in China is largely shaped by its distinctive local environment. The characteristics of the state-owned assets determine the absolutedominance of the non-trading state-owned shares, which gives the internal demand for the market for corporate control to act as an external governance mechanism. Meanwhile, the quota system in securities issuance results in the emergence of the "shell" resource, becoming the trigger of control rights transference and directly contributing to the specific attribute of the Chinese market for corporate control. In China, the change of control rights is mainly by means of tender offer; statistic examination suggests that even though large premium flow from control rights transactions, it usually do not reward for managerial effort, but private benefit and/or the "shell" resource. As to the other two ways to capture the control rights, in one case, collection of voting tight would incur considerable cost, along with existence of the incentive of abusement, which is likely to result in inefficiency; looking quite bright from the theoretical point of view, the MBO is nevertheless expected to alter the cost-benefit structure of the transference of corporate control due to the strong incentive to disguise the asset quality especially the profit information.Looking back to the supervision environment for corporate control transference, since the distinguished leading function of government, as an organic component and sub-section of the capital market, several matching relationships have to be maintained regarding the legislation and administration of the market for corporate control, guided by the national property system and the industrial policy, initiatives, or modification in current regulations, bylaws, etc., should be advanced according to practical circumstances. Down to the individual property transaction, market will still be the decisive element wit...