A Study On Expropriating And Protecting Minority Stockholders' Rights And Interests In Chinese Listed Companies

How to protect the minority stockholders is an international subject that western countries have begin to perfect the relational system and organization of minority stockholders protection since 1970s. Minority stockholders play an important role on our country's stock market, whose investment confidence relates directly to the development of the capital market. During the last ten years, we have taken a series of measures in stockholders' rights and interests protection. However, with the development of the security market, a large number of incidents infringing minority stockholders appeared which has become a great obstacle to the development of capital market. This article based on the foundation of minority stockholders' rights and interests being occupied, with the micro-economics' marginal cost, marginal return, game theory and econometric models, there are three major research questions: the inevitability of expropriation phenomenon, the analysis on supervision of minority stockholders and infringement of major shareholders, and the relationship between their protection and corporate value, then proposes the policies and proposals.1 Contents.(1) Introduction. (2) Theoretical foundation and summary studies. Including the status of shareholders, agency theory, agency cost theory, relations contract theory, public choice theory, the foreign and domestic summary studies. (3) The reality of analysis on expropriation. Involving the manifestation forms and endangering of infringement. (4) Economic Analysis. From the implementation of the two main economic activities - minority stockholder and major shareholders, with the systematic game theory and mathematical analysis, which probed the influence factors of supervision and expropriation behaviors, found out the reasons of infringement. (5) Empirical Analysis. Putting concentration ratio of shares, corporate value and the protection in an identical frame system, with the date during 2004-2006 of Chinese A-share listed companies, and carry on the multi-regression analysis which reflect the market environment the minority stockholders in, reveal the relationship between their protection and corporate value, and the factors of protection. (6) Policies suggestion. (7) Defects and prospects. 2 Conclusions.(1) Because of the special background system, the phenomena that the expropriation have occurred frequently in our stock market. The manifestation forms of infringement are varied which have affected the minority shareholders, the listed companies and even the society.(2) Analyzing the expropriation between the minority stockholders and the major shareholders. On the one hand, as "Clever Pig Game" payment matrix and the cost of supervision, only one Nash equilibrium exists, that is, (supervision, not supervision), then the minority stockholders often incline to "free-riding". On the other hand, when the major shareholders implement economic behaviors, if their receipts are more than costs of expropriation, and costs of the minority stockholders' supervision are more than benefits, Nash equilibrium exists pure strategy, that is, (expropriation, not supervision). As the separation of cash flow rights and controlling, the major shareholders prefer expropriating the minority stockholders to accessing private benefits, which interpret the phenomena of expropriation effectively.(3) This paper selected 3535 listed companies in 2004-2006 to carry on empirical analysis. The findings indicate: Firstly, the listed companies which protect differently can cause corporate value remarkable difference, when they are protected better, the agency cost is lower, and the corporate value is higher. Secondly, the high concentration of shares is an effective alternative mechanism, which contributes to the protection and corporate value. Thirdly, interval effect appears among the largest shareholder, the protection and corporate value, which have the relationship of the inverse "U" and Z index was not remarkably correlated with it. Fourthly, the separation of chairman and manager has a certain impact on corporate value and the protection. Independent directors play a positive role on minority stockholders' protection but not in corporate value.3 Suggestions.(1) Consummating the corporate governance mechanism. Firstly, we must perfect measurable ownership structure, minimize the difference between private benefits of control and cash flow rights, to reduce additional profit by expropriating, and develop diversified investment system on the basis of the state of our country. Secondly, we should improve the internal governance system of listed companies according to the modern enterprise system requirements, including the general shareholders meeting, board of directors and of supervisors.(2) Setting up outside governance mechanism effectively. The measures include reinforcing the supervision and restrain from minority stockholders, intermediary institutions and medias.(3) Perfecting legal system. According to the trend of international securities legislation and the development of actual needs in China's securities market, we should perfect the legal system and securities civil compensation mechanism, regulate to disclose information of listed companies that enlarge the strength of punishment on infringement and the compensation to minority stockholders, thus reduce their losses.(4) Enhancing the consciousness of minority stockholders protection. Minority stockholders must strengthen the awareness of self-protection and improve their own quality, thus to reduce the cost of supervision, improve the quality and enthusiasm of supervision to managers and controlling shareholders which defend their legitimate rights and interests.