The Influence On Performance Of Corporate Control Right Transfer By Regulation Change

Corporate control right is not only a core issue in modern corporate governance structure, but also an important subject in capital market study. Berle and Means (1932) first put forward the concept of corporate control, they think corporate control right mainly means the right of election and the right to change of directors. Fama and Jensen (1983) interpreted it as the right that determining corporate resource management, including employment right, dismissal right and the right to set up compensation for senior management. Corporate control right in the study of this paper is defined as the right that can decide the management and future development direction of the company. In Chinese listed companies, it mainly shows as major decision-making right directly or indirectly owned through stock right relationship. Corporate control right market refers to the market that different interest subjects compete with each other and try to control the company through getting stock rights or authorized voting rights with control right position. Control right transfer is an important measure that listed companies making capital expand and contract, as well as an important method to make industrial structure adjustment, industrial upgrades and resource optimization. In the process of corporate control right transfer, regulation change offers various requirements (implementation of forced information disclosure or essence of audit) to relevant interest subjects, which may in certain degree, make influence to the transaction cost and corporate performance in the process of corporate control right transfer. Developed countries in western capital market have formed sound merger and reorganization regulation system for listed company in practice. Influence on the performance of corporate control right transfer by overseas M & A regulation mainly studies the influence of Williams Act in 1968 and deregulation in 1980s. Bradley, Desai and Kim (1988) found after study that the implementation of Williams Act in 1968 make shareholders of Target Company obtain more excess income. Franks and Harris (1989) found that excess income in Target Company improved after 1968, and imperative information disclosure helped protecting the interests of minority shareholders. However, David J.Flanagan (1996), Lubatkin, Srinivasan, Merchant (1997), Carlos, William and Nail (1998) found after research that regulation change did not make influence to the performance of corporate control right transfer.Along with the development of listed companies control right transfer practice, laws and regulations regarding merger and reorganization of listed companies in China improve gradually. From Stock Regulation in 1993, Company Law in 1994, to Securities Law in 1999, Regulation on the Takeover of Listed Companies in 2002 and relevant documentation, merger and acquisition regulation system of listed companies in China finally establishes. Meanwhile, towards major assets restructuring in listed companies, China Securities Regulatory Commission(CSRC)issue (1998) No.26 document, (2000) No.75 document and (2001) No. 105 document. For the supervision of major assets restructure, No. 75 document transmit the examination and approval system to records system after the event, which reflects the supervision department, for the needs of encouragement, take the measure of supervision after the event; No. 105 document transmit records system after the event of No. 75 document to approval and records system during the event, which reflects the supervision department once again adopt materiality auditing for major assets restructure. Relevant M & A regulation system regarding control right transfer in listed companies formed very late in China. Studies conducted by domestic researchers on the influence of performance of corporate control right transfer by M & A regulation are still in blank situation. Former studies only make comparison analysis on the performance of control right transfer in different years. Changhui Yao and Huan Yan (2004) are of the opinion that the performance of corporate control right transfer decline since 1999 along with the perfection of legislation and decrease of exaggerative financial statement; Zhicheng Wang and Yi Zhang (2004) think that, accumulative excess income during 1999 to 2000 less than 1996 to 1998 is due to the development of market, the expectation to the stock right change is declining.By studying 131 listed companies which carrying out control right transfer in China Securities Market during 1999 to 2003, as well as empirical studying from three aspects namely performance of corporate control right transfer, short-term market reaction and long-term market value, this paper verifies if"Regulation on the Takeover of Listed Companies"in 2002 and Document 105 can make influence to the corporate performance of control right transfer. Through studying the integrative performance of 131 sampled companies, this paper discovers that the long-term performance of control right transfer corporate cannot be improved, meanwhile, the long-term performance of companies that conducted major assets restructuring also cannot be improved in sustainable progress. Shareholders of control right transfer corporate can obtain outstanding short-term excess income; meanwhile, shareholders of companies that conducted major assets restructuring can obtain more short-term excess income. Control right transfer corporate does not improve their long-term market value, and the long-term market value of companies that conducted major assets restructuring has not been improved significantly. Through further study on the influence of corporate performance of control right transfer by regulation change, this paper discovers:1."Regulation on the Takeover of Listed Companies"in 2002 regulates the merger and acquisition procedure, which promotes the merger and acquisition of listed companies; Document 105 enhances essence of audit, which improves the quality of major assets restructuring. Above regulation changes effectively improve the quality of listed companies after control right transfer.2."Regulation on the Takeover of Listed Companies"in 2002 for sure regulates information disclosure in the process of merger and acquisition; Document 105, supervision on whole process information disclosure reinforces the quality of information disclosure. Above regulation changes weaken the inside information in certain degree, short-term excess earnings rate decreases significantly, and times for advanced information disclosure shorten obviously.3."Regulation on the Takeover of Listed Companies"in 2002 can only supervise the information disclosure condition during the control right transfer period, while cannot guarantee long-term market value increase of companies that conducted control right transfer; Document 105 can only supervise the capital quality of major assets restructuring company, while cannot guarantee long-term market value increase of companies that conducted control right transfer and major assets restructuring.These discoveries have important reference value for Supervision Department improving their supervision efficiency. Based on the conclusion of the study, this paper further proposes concrete policy suggestions to Securities Supervision Department:1. The implementation of"Regulation on the Takeover of Listed Companies"in 2002 and Document 105 further represent the supervision concept, that is encouraging merger and reorganization of listed companies. After study, this paper discovers that long-term value of control right transfer corporate does not improve significantly after the implementation of"Regulation on the Takeover of Listed Companies"in 2002 and Document 105. Securities Supervision Department should reconsider the merger and reorganization supervision concept in China, and transmit their supervision from risk control supervision to risk discovery supervision, from corporate performance supervision to information disclosure supervision.2. Considering the big externality of information disclosure and the serious lag condition of information disclosure currently in China, Supervision Department should consider to redefine the supervision role of listed companies, to change single supervision method and to set up social supervision system for imperative information disclosure. As for change of securities supervision method, it should pay attention to the social supervision role played by the intermediary agency, especially accreditation agency, accounting firm, assets appraisal office, law firm and news media.3. Quality of listed companies is the footstone for healthy operation of capital market. Merger and reorganization of listed companies is an important way to improve the quality of listed companies. While emphasizing information disclosure and establishing social supervision system, supervision for merger and reorganization of listed companies shall also focus on the quality of listed companies. In the practice of supervision, Securities Supervision Department must get rid of its former model, for instance, focusing too much on financial indicator e.g. profitability, but pay more attention to the internal governance structure of listed companies.