Study On Large Shareholders Expropriation And Investors Protection During Full-Circulation Of A-Shares

Nontradable share reform could not in a reasonable way resolve the problem of domination of a single shareholder existed in listed companies in China although it did address to an inherent and fundamental issue in China capital market with a suitable result of interest accordance of stakeholders. Large shareholders' expropriation of minority shareholders' interests still de facto prevails in practice after the ending of this reform. To maximize their own interests, large shareholders have an incentive to expropriate minority shareholders' interests by their absolute privilege of share amount held and information acquired since from then on they possess the mass would-be tradable shares.The purpose of this research is to examine the expropriation misbehaviours of large shareholders throughout the periods specifically from the startup of nontradable share reform to the time when nontradable shares are full circulated by a methodology of combination of both normative analysis and positive analysis, suggestions on the policies of protection of minority investors' interests are presented following a detailed analysis of the characteristics and tendency of large shareholders' expropriation during the above mentioned periods.The main research work and brief conclusions about this paper are as follows:1.Based on anlyasis of the mechanism of expropriation misbehaviours of large shareholders during the full circulation process, borrowing Ohlson model, we construct a large shareholders'utility model that includes the consideration of quantitative relation between transferring of firm's assets and its share price. The deduction of our model is as follows: first, in the course of full-circulation of A-Shares, large shareholders are likely to take tunneling measures to lower their average cost of shares purchased before the promised nontradable time of shares in order to maximize their own interests. The lower is share price than its value, the more is share amounts purchased by large shareholder; secondly, large shareholders tend to inject assets to controlled listed companies to manipulate share prices before they sell shares which is tradable after the promised nontrading time passed, and large shareholders have stronger motivation to manipulate share prices not only while they maintain higher stockholding level or have purchased more shares during the promised nontrading time but also while they anticipate a greater deviation of share prices from its evaluation as well as a higher ROE ratio of the firm is expected.2.This paper conducts empirical tests on fulfillment of promises made by large shareholders during nontradable share reform. The examination shows that almost all of large shareholders of listed companies inclined to keep their promises, however, few cases do exist in which large shareholders just ignore what they have promised and would not burden their obligations such as the prevailing promises of high quality assets injection.3.This paper examines the expropriation misbehaviours of large shareholdersmis during private placement. The findings include:(1)share prices of private placement facing to large shareholders and large shareholders' related parties are significantly different from those facing to institutional investors, this implies that large shareholders expropriate minority investors' interests through deliberate manipulations of financial decision; ( 2 ) empirical evidence indicate that large shareholders are likely to self-serving through insider trading in the processes of private placement ;(3)results of empirical test show that it hard to believe that large shareholders did inject high quality assets to controlled companies as they promised in the process of private placement from a perspective of changes in financial position before and after the injections. 4.We have examined the status of reducing shareholding of large and small part of non-tradable shares in process of full circulation of A-shares and its impacts on capital market.The examination suggests:(1)some investors incline to sell down shares they held before lockup period of restricted shares come to an end, therefore, the unlockup of restricted shares bring a material pressure on capital market, and the sell out pressure of shares of a company of which shareholders just earn the unlockup permission is significantly higher than average level; (2)Tobin-Q of a company and security market situation are the two primary elements which influence market effect of unlockup of restricted shares, the higher the Tobin-Q of a company, the lower the cumulated abnormal return rate of this unlockup, furthermore, during the unlockup process, the cumulated abnormal return rate is lower in a recession of capital market, and vice versa. Besides the above mentioned two primary elements which influence market effect of unlockup of restricted shares, size of companies can be counted as the third one; (3)our detailed estimation and calculation shed light on the following facts: the pressure of shareholding reducing arise mostly from that of small part of non-tradable shares before October 2008, and from then on the similar pressure would stem from that of large part of non-tradable shares. Moreover, the pressure of shareholding reducing of large and small part of non-tradable shares would mainly concentrate in the year of 2009.5. Finally, suggestions on the protection of minority investors'interests are presented in the dimensions of perfection of the structure of corporate governance, soundness of legal system of investor protection and construction of creative supervision models, which focus on the dealing of expropriation misbehaviour of large shareholders and of the fast changing economic condition.This paper makes contributions to the literature in the following two dimensions.(1) Following detailed deductions about the characteristics of large shareholders' expropriation through constructing large shareholders'maximum utility model, this paper conducts empirical testing about deductions mentioned above from the aspects of fulfillment of promises during nontradable share reform, private placement.and reducing shareholding of large and small part of non-tradable shares, and provides empirical evidences of large shareholders'expropriation misbehaviours during the full circulation process; (2)Based on the empirical testing, this paper proposes some suggestions from various dimensions for the supervisory bodies concerned on restricting expropriation misbehaviours of large shareholders.