A Study On Majority Shareholders Expropriation Of Property Rights In Seasoned Equity Offerings

In the context of Chinese special split share structure seasoned equity offerings were once important tools for majority shareholders expropriation. The reform of split share structure began in 2005 have resolved the problem of split interest between majority shareholders with non-tradable shares and minority shareholders with tradable shares. In other countries with full tradable shares, however, the expropriation by majority shareholders still exists. The thesis aims to test if the expropriation by majority shareholders still exists in the process of seasoned equity offerings after the reform of split share structure and to investigate solutions to majority shareholders expropriation.The property rights theory is applied to analyze the nature of majority shareholders expropriation in the theoretical part of this thesis. Earnings managements between public equity offerings and private equity placements are investigated to test if majority shareholders expropriation still exists after the reform of split share structure. The expropriation by majority shareholders can be testified if firms with public equity offerings adjust earnings upwards while firms with private equity placements to their majority shareholders adjust earnings downwards before issuing. The reason is that the former would cause lots of minority shareholders to purchase shares with higher price and the latter would cause majority shareholders to purchase shares with lower price. Minority shareholders lose and majority shareholders benefit, which can confirm majority shareholders expropriation. Three aspects including interest expropriation, property rights restrictions and legal punishments are theoretically analyzed to investigate potential factors of majority shareholders expropriation, and then the multiple regression analysis, discretionary accruals as substitution variable of majority shareholders expropriation, is applied to test the actual impact factors.Theoretical analyses indicate that the expropriation by majority shareholders is actually an encroachment to the property rights of minority shareholders. Furthermore, it is the split property rights but not common property rights that cause to majority shareholders expropriation. The empirical results show that earnings in public equity offerings increase prior to financing but decrease after that abnormally while earnings in private equity placements to majority shareholders decrease prior to financing but increase after that abnormally. The results also show that public equity offerings firms experience abnormal increase of discretionary accruals before financing, negative cumulative abnormal returns around the announcement day, and negative long stock performance. In contrast, private equity placements firms experience abnormal decreases of discretionary accruals before financing, positive cumulative abnormal returns around the announcement day, and positive long stock performance. The results in the governance analysis of majority shareholders expropriation show that variables proxy to property rights restrictions, such as the ownership balancing degree and the CEO share-holding, and variables proxy to interest expropriation, such as divergence between control and cash flow rights, are negatively related to discretionary accruals.It is confirmed that the expropriation by majority shareholders still exists in the process of seasoned equity offerings after the reform of split share structure. It is argued that the appropriate restriction to the property rights of majority shareholders is the key to solving the problem of majority shareholders expropriation.