Research On The Impacts Of Split-share Structure Reform On Big Shareholders' Control In Private Listed Companies

As an important part of the economic development, private enterprises in recent years show thriving vitality. Its influence in China's securities market is growing. But private listed company itself still has many problems. Its all kinds of illegal activities, especially the expropriation by big shareholders, have already been harmful to the normal order and healthy development of equities. Domestic studies have pointed out that this phenomenon mainly comes from the principal-agent problem of private listed companies, and largely reflects the control problems of big shareholder. In the current important period from equity division to full circulation, how does big shareholders' control right change in private listed companies, whether private benefits of control can be effectively restrained, are extremely notable topics.Based on the reviewing of related literature at home and abroad, this reseach collects data of private listed companies in Shenzhen and Shanghai Stock Exchanges in 2004-2008, and systematically studied the influence of split-share structure reform on big shareholders' control right through various methods like the statistical analysis and theoretical analysis, quantitive analysis and mathematical analysis, and case studies. This paper first examines whether big shareholders care about private benefits of control in selling their shares, then discusses the response of big shareholders who care about private benefits of control to the split-share structure reform. Finally, the factual impacts on the level of private benefits of control brought by big shareholders' response are discussed. The main conclusions can be summarized as follows:(1) Private benefits of control do not have significant effects on big shareholders' decision of selling their shares; however, big shareholders who appear to be indifferent to the pursuing of private benefits of control in fact care about the private benefits of control. Based on the view that selling stock shares changes share ratio of the controlling shareholders, this research discovers that whether big shareholders sell their shares or not is mainly a result of comparing the benefits of selling stock shares and public benefits of control. But we cannot simply make a conclusion that big shareholders do not care about private benefits of control. The reason why private benefits of control do not have significant effects on whether big shareholders sell their shares is that big shareholders strengthen their control in response to the split-share structure reform, and thus the reducing of one's share holdings cannot have important impacts on big shareholders' control.(2) Controlling shareholders take measure against the split-share structure reform in order to maintain their control. Take family control as an example, this research investigates whether big shareholders strengthen their control to cope with the reform, and finds that family management control is actually further enhanced instead of weakened. Split-share structure reform weakened the monopoly of family control rights, which urges big shareholders to consolidate their control from other aspects. Increasing family members participating in management becomes the most convenient and effective means for the controlling family. In addition, after the split-share structure reform, manipulating the secondary markets through false reveal becomes a new way for big shareholders to grab private benefits of control. The enhancement of family management control after the reform is helpful for grabbing private benefits of control by cahoot with managers.(3) The performance of split-share structure reform has dynamic changes in the long term. As a result, the comprehensive governance of strengthening mechanism of control must carry on in order to correct the expropriation of benefits of small shareholders by big shareholders. The key point of private benefits of control lies in the principal-agent relationship between big shareholders and small shareholders. Strengthening mechanism constituted by monopoly of control, pyramid control level and family management control can have an important impact on private benefits of control. After the launch of split-share structure reform, the level of private benefits of control in private listed companies shows a U-type trend over time. The influence of strengthening mechanism of control is weakened in a short term but then increases again. It is mainly because big shareholders strengthen their control to cope with the split-share structure reform.Based on the phenomenon that the expropriation of benefits of small and medium shareholders by big shareholders still exists after split-share structure reform, this research analyses the effects of split-share structure reform on big shareholders' control in private listed companies and gets some new discoveries. Long-term performance of split-share structure reform is also investigated from a dynamic perspective. Meanwhile, this research puts forward explanations on the formation of big shareholders'c ontrol and private benefits of control that is different from existing literatures. Human capital and social capital are regarded as having important impacts on the degree of family control, and it is pointed out that the private benefits of control in private listed companies mainly reflect the principal-agent problem between the big shareholders and the medium and small shareholders. These viewpoints are all supported by empirical results. The conclusions of this research help to deepen the understanding of problems related to big shareholders' control in private listed companies. It is a beneficial supplement and also improvement for researches on the influence and performance of split-share structure reform, and can provide a reference for the healthy development of China's securities markets during the time of full circulation.