A Study On Controlling Shareholders' Behaviour In Private Placement

This is a study on controlling shareholders'behavior in private placement in our capital market. This paper mainly focuses on the choice of controlling shareholders arising from self-beneficial motivation after share split structure reform. Since private placement has been the most popular SEO and draw great attention of regulators and investors, also it is of academic importance, this topic is significant.This paper investigates the behavior of controlling shareholders in private placement from three aspects: controlling shareholders'self-beneficial motivation of subscription, self-beneficial behavior by means of price of share offered by listed companies and self-beneficial behavior by means of price of assets offered by controlling shareholders when they subscribe shares with assets. As for the self-beneficial motivation this paper have three analytical aspects: maintaining or increasing the proportion of shares, promoting of share value and taking the convenience of share pledge; Besides, this paper refines two methods of getting benefit for controlling shareholders in the process of subscription: stock price offered by listed companies to controlling shareholders and assets price offered by controlling shareholders to listed companies.There are three results of our empirical analysis: Firstly, subscription behavior of controlling shareholders will promote their share proportion and improve performance of listed companies, also make investors confident on them and get more return of stock market. This result gives some evidence on beneficial motivation of the behavior of controlling shareholders while subscribing. Secondly, in the process of subscription, controlling shareholders get lower offer price based on their power on listed companies. The lower price is reflected by the higher discount, so controlling shareholders get excess benefit from lower price subscription. Lastly, controlling shareholders get higher price of assets if they subscribe shares with others assets they own in the private placement. The higher price of assets is reflected by the higher premium of assets evaluation, so controlling shareholders get excess benefit from this higher price of assets. Our robustness checks strongly support these results. This study suggests that the behavior of controlling shareholders in the private placement conform to the self-beneficial motivation. This paper contributes to existing related literature as it explores new benefit motivation and methods of controlling shareholders in the new institutional environment in our nation. This paper also gives some evidence on the effects of share split structure reform, a radical change of institution in our capital market.