Research On Large Shareholders' Tunneling: Based On Minority Protection In The Process Of The Entire Circulation

With the implementation of state share sale reform, Chinese capital market system environment underwent fundamental changes. Shanghai and Shenzhen A-stock markets are making their way into fully circulating process rapidly. Major shareholders'tunneling has changed dramatically while medium and small sized investors are confronted with an increasingly serious problem of protecting their individual interests. Under such circumstances, some significant practical problems arise and demand urgent solutions in our national capital market during and after full circulation, including how to hinder major shareholders from infringing upon medium and small sized investors, how to protect medium and small sized investors'interests and how to promote listed companies'value, and so on. From the perspective of protecting medium and small sized investors'interests, this dissertation elaborates on major shareholders'tunneling in the fully circulating process with regard to reducing shares, insider dealing and whole group listings. It also analyzes how these two external governance mechanisms, that is, equity interest check-and-balance and legal binding, manage to inhibit major shareholders'tunneling. The main achievement and innovation of this dissertation are as follows:First of all, with reference to the relevant theory of behavioral finance, we devise utility function of major shareholders in the process of full circulation. According to our analysis about the relationship between asset transfer and stocks price, we come to the following conclusions. First, major shareholders are inclined to increase the future share transfer price. Next, the main factors that influence major shareholders'behavior include major shareholder's shareholding ratio, share price expectation and secondary market price. Thirdly, major shareholders'tunneling is characterized by stake reduction with a high price, insider trading and asset injection, etc.Then, empirical research is carried out to examine the relationship between the estimated value of listed companies that cut stakes, along with its estimate value in the specific industry and the whole market, and the amount of reduced stake of major stockholders. Meanwhile, our research also demonstrates that Tobin's Q theory plays a leading role in the fully circulating process.In the third place, based on OLS and Logistic Regression, we conduct the empirical studies concerning major shareholders'tunneling by controlling important information disclosure in the process of stake reduction and draw the following conclusion. Firstly, for the past 30 market days prior to stake cut, the listed company gains remarkable positive accumulated benefits while it obtains striking negative accumulated benefits for the next 30 market days. Secondly, the listed company tends to reveal good news before its stake reduction, but reveal discouraging news after taking action. Thirdly, major shareholders of private listed companies are more likely to violate medium and small-sized investors'interests by controlling the company's information disclosure. In contrast, state-owned holding companies do not exhibit this feature. Finally, if Tobin Q-value of the listed company that reduces stake is high, major shareholders are supposed to be more likely to control the listed company to reveal some important information.Fourthly, based upon Logistic Model, we work out the discrimination system and identification model of insider dealing. The following points are concluded according to our empirical studies. On the one hand, generally, the basic insider functions as the principal body of insider trading. Inside information is mainly focused on merger and acquisition, as well as profit sharing. On the other hand, except daily turnover ratio, such variables as daily earnings rate, daily earnings quadratic term and product term of daily turnover ratio and daily earnings rate all can help to distinguish insider trading and non-insider trading effectively.Next, empirical analysis is made about whole group listings and company performance by employing Scene Analysis and Accounting Analysis. The following are some of our findings. First of all, listed companies announce that whole group listings can bring positive wealth effect and involve insider trading. Secondly, the company's short-term earning power can be strengthened after whole group listings. Thirdly, the company's connected transaction decrease dramatically. Fourthly, major shareholders tend to have more convert tunneling during the course of whole group listings.Lastly, we also examine why the company's internal governance mechanism fails to curb major shareholders'tunneling and protect medium and small sized investors'interests. Moreover, from the perspective of shareholders, we construct a game equilibrium model that involves multi-agent interaction. A case study of Huang Guangyu's insider trading is carried out thoroughly. As a consequence, we can safely draw the conclusion that the two external governance mechanisms, that is, equity interest check-and-balance and legal binding, manage to inhibit major shareholders'tunneling and protect medium and small sized investors'interests effectively .As a typical emerging market, the share reform has been successfully completed in the Shanghai and Shenzhen A-share market . The market is in full circulation process acceleratly. However, the features of listed companies still does not change such as, the concentrated ownership structure, the owner absence and insiders control in the short term. The laws of protection of the interests of small investors ,the relevant regulations and the judicial system yet have to continue to improve. The hidden tunneling of major shareholders of listed companies aggrieve the interests of small investors and even more difficult to identify.The function of resource allocation of capital market also needs to be strengthened step by step. That how to effectively prevent a large shareholder aggrieve the interests of small investors to protect the legitimate rights and interests of small and medium investors and how to effectively enhance the value of listed companies is becoming important in the circulation process of the stock market. Both of these problems have defects in the internal governance reasons, but also outside governance reasons. All the reasons have close direct contact for the major shareholders behavior.Therefore, based on protecting the interests of small investors we study the tunneling of large shareholders of the process of circulation of the Shanghai and Shenzhen A-share market,not only to promote the China's capital market , to improve resource allocation efficiency, to standardize corporate governance structure and to lower capital costs, but also to enhance effective supervision of the government. It has more important theoretical and practical significance.