On Minor Investors’ Interests Protection Mechanism And Counter-measures Based On Equity Financing Preference

Malevolence equity financing of a company with the characteristic of the equity dominator deprivingother investors of interests has become the bottle-neck of China capital market developing furthermore,which doesn’t only infringe upon most minor investors’ interests, but also results in the absence of moreefficient allocation of scarce capital and prevents China capital market from keeping up with lasting,healthy and normative development. On the basis of studying the function of the interest protectionmechanism of minority investors about the financing behavior of company, this paper does comprehensivesystemic theoretical research of the characteristics, trends, forming mechanism and factors of the equityfinancing preference of China companies; empirically analyzes the relation of minor investors’ interestprotection and the equity financing preference of China listed companies; In view of rectification andgovernment of the strong equity financing preference of listed companies, studies the optimizationmechanism of capital structure, the diversion mechanism of dominator, the market-supervision mechanismof company financing; puts forward the value judgment, system, and countermeasures of protecting minorinvestors’ interests from different aspects of the consummation of board of shareholders, corporategovernance improving, the reinforcement of manager motivation and constraint, attention to financingcriterion and price system, the advance of information quality, the intensification of postmortemsupervision, punishment, and outer markets, etc.Ⅰ.In the clue of financing validity, work over the relationship of the mechanism of protectingminority investor’s benefit and company financing behavior by two steps: First, study the function of thecriterion mechanism of minority-Investor-interest protection on the financing behavior of company; Second,on the basis of studying on financing status quo of China’s listed companies, empirically analyze the causesof the equity financing preference of China listed companies and its infringement on the interests of thesmall and medium investors, and put forward the mechanism and countermeasures to protect the interestsof small and medium investors in the context of strong equity financing preference existing in China listedcompanies.Ⅱ. There is the necessity under the background of latest market development to improve theprotection mechanism of the minority Investors which is based on effective market and traditional investor rationality. At first this paper summarizes the investor-protected theories from the world, analyzes thebackground、condition and limitations of each theory, and makes clear the changing skeleton of them.Comparatively, domestic studies start later、and lack integrity、pertinence and maneuverability. Especiallythe phenomena of investor being infringed taking on new characteristics and trend, the correspondingtheories lag behind and are related to measures and system. It’s necessary to spread the study on how toprotect the investor’s interests under the condition of Equity Financing Bias.Ⅲ. Study on the function of interest protection mechanism of minority investors on the financingbehavior of company. Based on the finance environment theory of Jensen and Mecking(1976) and theprospect theory of Tversky﹠Kahneman （1979） and with the help of the framework ofBecker’s(1968)"crime and punishment", this paper studies the influence of interest protection mechanism ofminority investors on the financing behavior of company by constructing a simple model based on thecontext of minor investors’ scarcely taking law protection and finds: The function of criterion protectionmechanism of the minority Investors can enhance the efficiency of market resource allocation byinfluencing the direction and scale of financing, with financing more in the financing projects of highefficiency.Ⅳ. Study on those reasons for the strong equity Financing Bias of China listed company and the harmto the investor’s interests. In the foundation of analyzing the strong financing preference actuality of Chinalisted company, this paper constructs the models of VRS and CRS with the help of model DEA and59decision-making cells taken from59listed companies which financed in stock in2010and demonstrate thereasons for the equity Financing Bias of China listed company and the harm to the minor investor’sinterests. It’s the first time to use the index of ratio of the issue number divided by the total stock number ofa company after its stock issue, for the rate is a percent and comparatively objective. The model shows:3.39%of China listed company works in increasing returns;84.7%cannot realize Pareto Efficiency;Tobin’s Q Ratio is3.44; Listed companies pay more attention to the rate of the issue number divided by thetotal stock number of a company after its stock issue and the Increase rate of main business revenue thanthe Debt Asset ratio. Furthermore, Ownership Concentration and Rate of Return on Common Stockholders’Equity are comparatively smaller. Those above conclusions indicate that on the established condition ofChina company, the preference of equity financing is inevitable and in low efficiency. What’s more, it does harm to the minor investor’s interests.Ⅴ.The protection of minor investors’ interests doesn’t only belong to the question of the constructionof security market, but also is essentially that of financing efficiency, Which therefore deepens theunderstanding of the protection of minor investors’ interests: Stronger preference of equity financing andweaker protection of minor investors’ interests lead to lower financing efficiency; Weaker preference ofequity financing and stronger protection of minor investors’ interests do the reverse. At last, this paper putsforward the protection mechanism and counter-measures of minor investors’ interests in the clue offinancing validity.