Study On Minority Investors' Rights Protection Mechanism Based On Contract Theory

Minority investors play an important role in our country's stock market. Their investment confidence relates directly to the prosperous and development of the stock market. But currently, the minority investors'interests are being violated seriously. As the part with few rights, the minority investors need a set of perfect mechanism urgently to protect their interests. At present, investor protection theories mainly emphasize the influence of legal system. However, as a way to implement the contract compulsorily, the law is important, but it protects minority investors incompletely. So, this article proposes a framework of investor protection which is based on the contract theory.The rights of the minority investors are defined by the financing contract signed between them and the stock publishers. Because of the incompleteness of the financing contract, the rights of the minority investors can be divided into the special rights and residual rights. Firstly, saying for the special rights, the core of investor protection lies in implementing the contract perfectly. A perfect system of implementing contract contains three levels: implementing by self, implementing by the third private party and implementing compulsorily. In implementing by self, the reputation mechanism plays the principal role. While in implementing by the third private party, the third party mainly refers to the intermediary organs in market. And in implementing compulsorily, the compulsory force mainly comes from the law system. Secondly, saying for the residual rights, the key of investor protection lies in the just residual rights distribution, and the key of which lies in whether the equilibrium of bargaining power between two parties is reached. When it is regarding to the equilibrium of bargaining power between two parties, we should consider the internal equilibrium and the external equilibrium at the same time. The core of the internal equilibrium is to form a reasonable shareholding structure of the firms. While that of the external equilibrium is to improve the competition of the stock market.Embarking from the incompleteness of the financing contracts, this article considers all the factors influencing the minority investor protection in a contract theory's framework, the factors including law, reputation, market intermediary organs, shareholding structure, and market competition. Compared to the popular studies emphasizing law protecting, this article has constructed a more perfect framework of minority investors protecting based on contract theory.