The Empirical Studies On Block Transfers Based On The Effect Of Equity Splitting Reform

Block transfers are the focus of market participants because of their greater importance than bulk stock trades, and they exist in the case of gradual transition market and high-concentrated listed companies in China resulting in their difference from those in developed capital markets. More and more block transfers after Equity Splitting Reform in 2005 have significant impact on equity pricing, corporate governance, market efficiency and investors protection. We convincingly explain different block transfers in Chinese stock market by deeply studying influencing factors of restricted stocks prices, exploring block transfers impetus, summarizing and testing impacts of block transfers, and we also provide empirical evidence on the effects of institutional innovation from Equity Splitting Reform, endogenity hypothesis of ownership structure and external corporate governance mechanisms, which helps perfect market supervision, reinforce corporate governance, improve market efficiency and better protection of minority shareholders.On the foundation of introducing research achievements about block transfers, defining relevant concepts, analyzing relevant theory including stock market liquidity premium theory,benefits of control theory,signaling theory,market microstructure theory,agency theory and market for partial corporate control hypothesis, combining with the environmental changing and the background of Equity Splitting Reform, following the time order, we analyze the issue of block transfers continuously by adopting methods of scenarios analysis and comparative study,theoretical study, empirical study based on mathematical statistics.Firstly, we conduct a comparative analysis on the difference between ratio of transferring price of restricted shares before Share Splitting Reform and after that and influencing factors of this difference. The focus of foreign market is on the driven factors of pricing block shares rather than the pricing fairness. More researches on pricing block shares in fully circulating market are needed due to low pricing efficiency and state-owned transferors in the different institutional and environmental background in Chinese stock market, which provides theoretical support for pricing state-owned block shares, IPO restricted shares, restricted shares from superior managers in active M&A market. The research shows that:liquidity constraints negatively correlate with the pricing of restricted stocks; the pricing based on net asset value per share is reasonable and has some limitations; there is positive correlation between restricted shares price and benefits of control, transferring percentage of restricted shares while benefits of control exist, the proportion of tradable A share; non-stated transferee adds a discount of restricted block stock prices. This paper provides empirical support for researches on factors selecting of block share pricing models.Secondly, an empirical analysis on the impetus of block transfers from restricted shareholders in 175 listed companies from 2006 to 2008 after Share Splitting Reform is conducted in this paper. Based on M&A, the impetus of block transfers in active controlling market has been studied in foreign literatures whose background obviously differs from that of China after Share Splitting Reform. Researches on summarizing the impetus of block transfers in China are qualitative due to lack of empirical evidence. We find that corporate performance and original ownership structure are the impetus of block transfers after Share Splitting Reform. As one of the performance indices, the ratio of operating margin from industrial point of view has significant impact on block transfers, but the common indices of ROA and PBV are statistically insignificant; shareholders from those companies whose ultimate owners are State-owned Assets Supervision and Administration Commission (SASAC) bias block purchases; ownership concentration adversely affects block increases. The conclusion empirically proves that original ownership structure and the ratio of operating margin are the impetus of block transfers after Share Splitting Reform, which provides indirect evidence for endogenity hypothesis ownership structure. On the other hand, it also proves that rational impetus of block transfers from large shareholders after Share Splitting Reform is helpful for reinforcing corporate governance.Thirdly, this paper is an in-depth study on the announcement effect of block transfers after Share Splitting Reform by providing insights into transfers orders (block purchases and sells) and home market scenarios. The market reaction to IPO restricted share trades and to block trades from M&A has been widely studied in foreign literatures whose background obviously differs from that of China after Share Splitting Reform. Few block transfers resulted from transfers of control attribute to high-concentrated listed companies in China, and domestic researchers who don't take transfers order into consideration tend to analyze the announcement effect of non-tradable shares transfers before Share Splitting Reform, and little research has been done on it after Share Splitting Reform. We take transfers orders (block purchases and sells) and market scenarios into consideration, and the impacts of supply and demand for stocks before transfers announced day and signaling effect on market after transfers announced day are involved in this paper. We find that positive cumulative abnormal returns are significant for sellers before block sells announced day and purchasers after block purchases announced day, which shows that it is a good strategy for investors to purchase blocks after their announced day. The impact of information on transfers on market after transfers announced day is greater than transfers conduct preceding transfers announced day, thus it is more important to strengthen governance of information disclosure on block transfers than transfers conduct. Market-specific price impact asymmetry exists in Chinese equity market, and stocks price has been manipulated by block sellers before transfers announced day.At last, we verify that structural and systemic efficiency of pricing can be improved by block trades from large shareholders after Share Splitting Reform and in the background of financial crisis. High-frequency data can not be used to analyze the impact of block transfers on the efficiency of pricing due to the fact that only approximate interval of block purchases or sells announced rather than the specific time is given. From views of optimizing ownership structure and stabilizing systemic over-reaction, we construct Logit model and attempt to investigate the impact of block transfers on efficiency of pricing by using 138 block trades from large shareholders after Share Splitting Reform in the background of financial crisis. We find that block trades from large shareholders can improve structural and systemic efficiency of pricing; the better the corporate performance, the higher the prices; large shareholders prefer block sells when market is rising and speculation exists, and the probability of block purchases is higher in bearish and low-turnover market, which is beneficial to decrease the systemic over-reaction and the impact of financial crisis on the market. Block increases from the largest shareholder occur more frequently in companies with lower ownership concentration, so they have less incentive to occupy interests of other shareholders and keep interests consistent with their companies, which benefits to the reinforcement of corporate governance. Agency theory predictions about the disciplining role of market for partial corporate control from block transfers are partly supported.The empirical study on block transfers is a large topic, and many theories are involved in it, so there must be some limitations due to time limitation in this paper. Therefore subsequent research is expected, and researchers should improve and expand this study in the future.