Study On Inefficiency And Countermeasures Due To Split Of Shares In China

In Chinese stock market, there is a mobility division phenomenon of shares called the split of shares. The non-circulating characteristics of the state-owned shares, the state-owned institutional shares and the corporate shares, accounting for about two thirds of the total shares, artificially cause the contradiction between supply and demand of the shares and lead to the deficiencies of the stock market's function. As a result, the liquidity, which is an important feature of the effective market, loses its function of resource allocation.The split of shares is an outcome of China's economy system transformation. Constrained by the traditional theories and ideas, it has a profound historical background and inevitability. The paper starts from the historical background and the present situation of the split of shares, and discusses the irrationality of the existence of this phenomenon, according to Property Right Theory, Efficient Market Theory (EMT), and Cost-Benefit Theory. This phenomenon has brought about almost all-around inefficiencies, from corporate governance, financing practices, dividend distribution mechanism to the corporate performance, and has played its "should be" roles.First, the splits of shares have caused significant impacts in the internal control and external governance. The strategic behaviors of the listed companies are fully showed up in the decision-making results of the proprietary shareholders or the actual controllers. These strategic behaviors fully represent their interests and badly infringe the interests of the shareholders of the circulating shares. As for the internal structural functions, the malformed ownership structure of the listed companies lead to the abnormal function of board of shareholders, board of directors and board of supervisors. Then because of the absence of the internal structural functions, the incentive and restrain mechanism become invalidated, the principal-agent problems become serious, and the agent cost is very high.However, as for the external governance system of the listed companies, its effect on corporate governance structure is quite a little. There are many reasons for this situation, such as the imperfect of Chinese capital market, the absence of the professional manager market and the corporate controlling power market, and the inefficient supervision of the country as the owner of the state-owned shares and social governor and banks as creditors lacking of the correlative information. Second, Equity financing can bring excess capital earnings to shareholders of the non-circulating shares. At the same time, shareholders of the non-circulating shares will get hidden earnings from the corporate controlling power of the listed...