Tunneling: Private Placement And Holding Reduction For Arbitrage

After the reform of the dual-class equity structure, the large shareholders'interest is be directly related to stock price. Holding reduction for the profit from a price discrepancy is the main way for the large shareholders to take tunneling activity. Private Placement, which emerged at the same time, often provides with stocks at a low price. The low price and the overreaction made by Private Placement both are perfect conditions for the large shareholders'holding reduction. Lured by huge profits, large shareholders preferred arbitrage at high prices in the secondary market after they got low-cost additional shares made by private placement. Accordingly, this paper will try to analyze the question that whether large shareholders take tunneling activity from a price discrepancy after private placement, by comparing offer price per share with the market price.Based on the empirical analysis of non-public offering cases happened from Jan 1,2007 to August 31,2008 where large shareholders participated in the offering, by the method of building a multi linear regression model, this paper get the following conclusion:(1) Large shareholders' holding reduction for arbitrage is the reason of that discount of private placement share is high, the higher the degree of large shareholders reduces the holdings, the higher the discount of private placement share; (2) The relation between the private placement discount and the level of arbitrage holdings of major shareholders is more significant in the state-owned enterprises; (3)In different market, the relation between the private placement discount and the level of arbitrage holdings of major shareholders is different. In the bull market, the above relation is not obvious, and in the bear market, the above relation is obvious.