China's Listed Market For Corporate Control

Since thel990s, corporate governance studies with control market as its core contents have become a research focus in financial academy. All these studies compared and analyzed the influence of different control market modes to corporate performance and capital market development from a global aspect, thus providing beneficial enlightenment for countries to enhance corporate governance improvements and capital market developments.Chinese securities market is a newly emerging market developed in the process of a transitional economy. In the process of restructuring and listing, a divided share structure comprised by state-owned share, legal entity share and public exchange-traded share was introduced into the companies, which causing various adverse effects on the healthy development of control market and continuous improvement of corporate governance. Therefore, a deep and profound analysis on control and control market of domestic listed companies could tell the deep source of companies' behavior and bring forward valuable suggestion to enhance corporate governance and promote market development.This article mainly focuses on control market of domestic listed companies, and analyzes all the following contents with a multi-level and multi-aspect way, including the structural characteristics of control market, the motivation of corporate control transfer, the characteristics of target company, the factors affecting premium, the performance of control transfer, as well as control market development & supervision after the complement of shareholder structure reform of listed companies.Conclusions include:(1) Systematically analyze and conclude characteristics of domestic listed companies' control market, the regime background and major characteristics in particular. Provide a descriptive and statistical analysis on listed companies' control formation and structure, and discuss control transfer and its behavioral characteristics of public company under total circulation.(2) Based on a profound analysis of western merger & acquisition theory, as well as Information Economy and Game Theory, this article focuses on control transfer behavior of listed companies in Chinese securities market and analyzes the motivation behind transfer, with a viewpoint that the core motivation of control transfer is the interest equilibrium among interest relevant parties. The research reveals that interest equilibrium among interest relevant parties is the fundamental force behind effective control transaction behavior.(3) This article conducts empirical research on the motivation and financial effects of listed companies' control transaction behavior. Based on the conclusion, we think that financial performance deteriation and financial pressure aggravation are main motivation of control transaction behavior, and companies with a low concentration of share structure and smaller scale are inclined to conduct control transfer. Further analysis reveals that the improvement of control transfer to corporate financial efficiency is not from resource integration, but asset social resources allocation, thus resulting in the performance improvement is not sustainable.(4) This article comes along and further develops the research method of Tang Zongming and Jiang Wei, and conducts research on decisive factors of control transfer premium. The study reveals that decisive factors include mature level of law regime, ownership attribute of controlling shareholder, P/B value and the proportion of tradable shares. To be more specific, corporate recognition, or in other word, P/B value and the proportion of tradable shares have positive effects on control value, while the mature level of law regime and ownership attribute of controlling shareholder have negative effects, and the nature of No.1 shareholder also has a remarkable effect. Furthermore, the control premium of state-owned shareholders is obviously higher than that of non-state-owned shareholders.(5) There are a great deal arguments on whether control transfer is beneficial for the improvement of corporate performance, which is an external governance mechanism. This article analyzes control transfer behavior of listed companies from two aspects, one is short-term market reaction, and the other is long-term wealth effects. The empirical study discovers that CAR is around 3% from 60 days before the announcement of control transfer event till the announcement day. It also reveals that BHAR of target company reduces to minus within 6 month of such announcement, for example, below -20% in two years and -26% in the fourth year. The above conclusion disagrees with most of current researches. In other word, there is no proof that control transfer will, in the long term, cause the performance of the acquiring company enhance and create wealth for the shareholders.On the whole, the major characteristics of Chinese listed companies' corporate governance are majority shareholder control and supervision absence of state-owned shareholder. Thus, optimal resource allocation function and delegation issue solving function (as an external mechanism of corporate governance) of control market have been greatly reduced. In such a particular period that Chinese securities market is entering into a Complete Tradable Period, it is necessary to regard the improvement of ownership and control as a core policy of further reform of corporate governance. In the meanwhile, it should emphasize protection for investors' legal rights, enhance the independence operation of Board of Directors and strengthen securities supervision, thus effectively restricting such behavior that majority shareholders take their personal interest through the control of listed company and encouraging those control transfer to create corporate value and enhance capital efficiency.This paper is the first attempt to:Based on corporate governance, this article analyzes characteristics of target companies from aspects of financial performance, share structure and enterprise characteristics, thus telling the profound reason of listed companies' control transfer under current Chinese security market regime.This paper introduces new variables through a special method and design, conducts empirical analysis on premium factors of company control transfer in the ownership separation background, and tells the truth that it must take into consideration of factors such as ownership structure and control allocation when assessing the value of non-tradable share such as state-owned share and legal entity share.This paper analyzes control market performance both from short-term market reaction aspect and long-term wealth effect aspect, and improves and makes up the one-way research method which only focuses on short-term market reaction analysis, thus forming an all-round understanding of domestic control market performance.By applying theories such as Game Theory and Asset Arbitrary Par Model, and based on domestic control market characteristics, this article establishes corresponding analysis mode and analyzes motivation behind and other deeper issues of domestic control transfer from an dynamic interest equilibrium aspect.