Research On Manipulating Profit By Means Of Related Party Transactions In Chinese Listed Companies

Related party relations and transactions occur as the system of multinational corporations and parent-subsidiary companies are widely applied in the world. Related transactions are very common among listed companies in China. Belonging to neutrally economic concept, related transactions are inevitably right action in market economy under the principles of openness, fairness and justice. Related transactions occur just among particular parties, so without proper regulating measures, related parties and listed companies tend to distort trade condition in order to transfer profit and seek some unjustified rights, thus causing some unfair related transactions. The transactions invade legal rights and interests of companies, middle-small shareholders and other concerned persons. It is of great realistic significance to study and regulate related transactions of listed companies.Accounting Standard for Business Enterprise ?Disclosure of Related Party Relationships and Transactions was issued in China on May 22nd, 1997. Since then a series of regulations systems has been issued to regulate related transactions, such as Stock Listing Regulations, and the Content and Format of Information Disclosure of Public Offering Companies. In addition, corresponding measures are taken to supervise fairness of transactions in order that the actions of manipulating profit by listed companies and related parties through related transactions are effectively put under control. However, it's still a difficult problem in security market. A lot of events show that utilizing related transactions to manipulate profit by listed companies is a prominent related transactions problem, which will bring about more profit to big shareholders, together with doing harm to listed companies and stakeholders, such as debtors and regulating institution.There are many reasons why utilizing related transactions to manipulate profit can bring forward many problems. In my opinion, there are two main causes: one is policies and regulations, the other is realistic cause. In terms of policies and regulations: information disclosure on pricing policy of related transactions and related parties is not perfect; index on evaluating enterprise achievement is too simple; lawsuit system of shareholder representative has not been constituted; distribution of compensation responsibility by false statement is not clear, etc. Such kinds of imperfectness on legislation provide listed companies and related parties with the chance to utilize related transactions to manipulate profit. In terms of realistic cause: illogical shares structurecauses the control of state-owned shares; insider's control and dissymmetrical information make it difficult to regulate state-owned shares; there are defaults on employment and payment system of CPA and independent financial consultant; regulation is not strictly enforced by supervision department, etc. All of the above reasons make unjustified related transactions frequently occur, and state-owned shares invade the legal rights and interests of other investors.According to existing problems above, combined with a lot of view of scholars at present, this thesis puts forward measures and suggestions on regulating related transactions of listed companies. The writer thinks efforts should be made on the following three aspects: listed companies, outer organizations, regulations and legal system. On the aspect of listed company, the most important thing is to perfect company's shares structure and to improve corporate governance. The measures are: reducing state-owned shares, introducing new investors, making full use of the role of independent director, and perfecting enterprise self-discipline system. On the aspect of outer organizations, in order to reduce the unfair related transactions by listed companies under powerful supervision, the following measures can be taken to supervise fairness of related transactions: perfecting independent financial consultant disclosure system, making full use of CPA's auditing, and strengthening t...