Intra-Industry Effects Analysis Of Increasing Stake By Major Shareholder

In the time of partitioned stock structure, tradable and non-tradable shareholders have different interests, which make big shareholders ignore the stock volatility of the secondary market. After the split stock structure reform finished, non-tradable shareholders and tradable shareholders have the same interest orientation. Changes of the secondary market price directly affect the value of shares held by major shareholders. Therefore, major shareholders begin actively involved in the secondary market to affect the value of listed companies. Meanwhile, in order to stabilize the stock market, reducing the negative effect of market reform, the Government introduces a lot of policies to encourage shareholders increasing stocks from the secondary market. In this context, abundant cases of increasing stakes arise. It becomes a hotspot of current research to test whether these positive responses to government calls are able to get the desired effect.In this paper, we inspect the samples of increasing stake announced by major shareholders from 2007-2010 in A-share market, found that there are significant abnormal returns for both announcing firms and rivals in the event windows. Major shareholders send positive signals to the investors by increasing stakes on the secondary market, which make the announcing firms experience significant positive abnormal returns. The signaling effects on the rivals are more complex. It is possible that the signals send by the announcing firms may convey industry-wide positive information, or it may imply the changes of competitive balance between announcing firms and rivals. The empirical results show that in Chinese market, the competitive effects are dominant in the industry. Investors prefer to believe that the signals are bad news for industry rivals. We also find characteristics of announcing firm don't play an important role in determining intra-intra industry effects. Degrees of competition and cash similarity are the most important factors to influence the intra-industry effect. The intra-industry effects increase with the degree of market concentration and go down with the degree of cash similarity. Because bank loans is still the most important way to raise capital for Chinese company, in short-run, large company has greater flexibility. The interaction between leverage and scale of announcing firms cause leverage plays a negative role on intra industry effect.Since intra-industry effects exist in Chinese capital market, a listed company should not only improve its own competitiveness, but also pay attention to the behavior of competitors. It is important to assess the impact of intra-industry effects and prepare to response in time.