Research On Private Placement Discount Problem Of China’s Listed Companies

Since the promulgation and implementation of the Measures for the Administration of Securities Issuance by Listed Companies"(CSRC Decree No.30,referred to as the Administrative Measure)in May 2006,private equity placements has been the most important form of equity refinancing in China’s capital market.The policy has been operating for more than ten years and has played an important role in the healthy development of China’s capital market.However,there are also some significant problems.Among them,the phenomenon of widespread high issuance discount has always been questioned by various circles because it is not conducive to investor protection and has a negative impact on corporate governance.The mainstream view of the academic community is to blame the tunneling behavior of large shareholders and the low level of investor protection in China for the reasons for the existence of this problem;the study of the occupation mode of large shareholders also shows an endless development trend,and it is difficult to grasp major shareholders’ behavior model.However,there have been few studies in the past based on the perspective of the private placement policy system,and a great deal of research has even lacked a policy foundation.According to the applicable policies,private equity placements can be divided into two categories:private offering shares and reorganization by private equity placements.Among them,private offering shares is subject to the Administrative Measures and Interim Measures on the Management of Issuance of Securities of Listed Companies of the Growth Enterprise Market"(CSRC’s Order No.100,referred to as GEM’s Management Measures):reorganization by private equity placements apply to the Administrative Measures for Major Assets Reorganization of Listed Companies(referred to as Reorganization Measures),According to the pricing policy,the sample can be divided into two types:the Bidding Method and the Pricing Method.Among them,private offering shares includes the Bidding Method and Pricing Method,and reorganization by private equity placements are the Pricing Method.At the same time,according to the study of the infrequent trends in the study of occupational misappropriation,we use the theory of net effect of the major shareholder after innovation to use it as an intensity variable to measure the motive of the major shareholder in order to grasp the behavior pattern of the majority shareholder.Based on the above policy foundation and theory,combined with the private placement process,and guided by the interests of major shareholders,the reasons for the high discounts of private placements in China are discussed from the perspective of institutional causes and theoretical roots.In the analysis of the institutional causes of the private placement high issuance discount phenomenon,policy analysis was carried out on the differences in discount pricing of different pricing methods,and empirical analysis was conducted on the two aspects of formal policy reform behavior and informal policy operation time management behavior.The policy analysis finds that the issuance discount of the Pricing Mothed is much higher than the issuance discount of the Bidding Method.And the issuance discount of the Bidding Method is close to or even lower than that of the mature market,indicating that the high issuance discount of the Pricing Mothed is the main source of the high discount phenomenon in China.The statistical analysis of the effect of formal reform on the discount price found that:The GEM Management Measures published in May 2014 and the Reorganization Measures(CSRC Decree No.109)issued in October 2014 all pushed up the issuance discount,intensified the seriousness of the issue of targeted high discounts.Analysis of the management behavior of the informal private placement policy during the run-time revealed that the sample of issuance discount of the Pricing Mothed,the more the CSRC limited,the longer the issuance cycle due to policy reasons and the higher the issuance discount.That is to say,the policy restrictive behavior of the CSRC’s financial management activities only at the time of issuance will in turn help to increase the issuance income of the issuer,resulting in a counter-rigorous behavior.This management public opinion has also aggravated the seriousness of the issue of China’s targeted high discounts.In the analysis of the theoretical root causes of high discount of the private placement,the discussion was made on the two aspects of the net effect of large shareholders and investor protection.Among them,the research on the expropriation of large shareholders was conducted respectively from the manipulation of the pricing method by major shareholders and the encroachment behavior in the process of private placement;the protection of investors was mainly from the protection of investors to the major shareholders in the process of private placement.Based on the analysis of the expropriation behavior of large shareholders,the study of the manipulation of pricing by large shareholders was conducted from the perspective of the selection of subscription types by major shareholders and the manipulation of two levels of collusion with potential issuers.It was found that the second-level manipulation behavior was significant.Large shareholders manipulate the pricing method based on the net effect value of their large shareholders.When the net effect of large shareholders is greater than 0,they choose to issue pricing more,and the probability that the issuer adopts the pricing is positively correlated with the net effect of large shareholders..For the study of the large shareholder’s encroachment behavior in the private placement process,it is found that there are indeed significant encroachment behaviors during the private placement of major shareholders,but these encroachment actions do not play a leading role in the issuance of discounts.Therefore,this part of the research concludes that the major shareholder’s manipulation of the pricing method is its manipulation within the scope of the policy.It is the space that the policy gives to its manipulation.The study of the major shareholder in the process of private placement is due to Its misappropriation does not play a dominant role in the issuance of discounts.Although it supports the existence of expropriation by major shareholders,it does not consider this to be the main reason for the formation of high discounts.Based on the investor protection perspective and the accounting investor protection index as the proxy variable,the effect of investor protection on the stock price of the issuer and thus the issue proceeds is studied.The study finds that investor protection in China has a significant inhibitory effect on the aggressive behavior of large shareholders.This finding not only further supports the view that large shareholder infringement is not the root cause of the high discount phenomenon,and shows that China’s securities market is already in a semi-strong efficient market state,and does not support the view that the lack of investor protection level is the reason for the high discount phenomenon.The study of theoretical roots also found that pricing mechanisms led to premium distribution.This,to a certain extent,increases the risk of issuance of major shareholders.The issue of premium issuance of private placement has not been given attention by the academic community.The reason is that the pricing mechanism of the issue price is locked in ahead of schedule,and then due to changes in the market environment,when the market price is lower than or close to the issue price,other issuers will give up the subscription.Shareholders are faced with greater constraints,and then subscribe for the promised shares at an early-locking issue price.This effectively explains the premium issue phenomenon from the policy level.Based on the above analysis,it can be considered that the source of the high discount price of China’s private placement is the issuing price formation mechanism of China’s private placement.Formal policy reforms and informal policy management actions further promote and consolidate high discount prices.However,the infringement of large shareholders is only the act of maximizing the self-interest within the scope of the policy,and its encroachment does not constitute a leading role in the issuance of discounts;it also does not support the view that the level of investor protection originating in China is insufficient,and is not caused by inadequate investor protection.The phenomenon of high discounts,but the high discount rate caused by the issue price formation mechanism of pricing is not conducive to investor protection,indicates that the protection of investors in our country is insufficient.The innovative aspects of this research are summarized below.The biggest innovation lies in the pricing policy research based on the pricing method.It is found that the issuing price formation mechanism of the pricing is the main source of the high discounted price in China.Research on the causes of institutions also found that policy reforms and policy time management behaviors have pushed up the issuance discount for pricing distribution.Based on the study of institutional pricing and the choice of the major shareholder’s expropriation,the author finds out that the large shareholders have the manipulation of pricing,but this is still a rational behavior based on maximizing their own interests.The research on theoretical roots found that although major shareholders have significant encroachment,they do not have a leading role in issuing discounts.Moreover,investor protection has played a significant role in encroaching on large shareholders.Therefore,the conclusion reached in this paper is that the phenomenon of high discounts for private placement in China is caused by policy reasons.The resulting policy implications include:(1)Mitigating the issue of high discounts in China’s private placements needs to be started with policies,and only paying attention to investor protection from policies can cause management to pay attention to high discounts.Specific measures to alleviate the phenomenon of high discount may include,for example,improving the pricing mechanism,reducing the issuance discount of the pricing issuance mode,and reducing the manipulation space of the pricing mode.(2)It is necessary to strengthen the scientific nature of the management of private placement,especially the management of informal policy operation time,supplemented by corresponding supporting management actions to eliminate management public opinion.(3)China’s securities market is in a semi-strong and effective market.Investor protection can play a significant role.The lack of investor protection is mainly due to the fact that the policy fails to protect the protection of investors’ rights and interests,and the major shareholder’s aggressive behavior still exists.Therefore,to strengthen investor protection is not only to strengthen the restrictions on the expropriation of large shareholders,but also to pay attention to policies and systems.