A Study On Wealth Redistribution And Tunneling Behaviors In Private Placement Of China A Share

Private placement is newly authorized after the Non-tradeble Share Reform. Because of its low request and simple rule, private placement is adopted as a primary option of re-financing for listed companies. However, private placement will significantly impact the equity distribution between the shareholders. Because of the pricing mechanism flaw and lack of supervision experience, some unfair tunneling behaviors occur in the practice, which expropriate minority shareholders' interests. Therefore, to study the tunneling behaviors in the private placement, is meaningful in many aspects such as the realization of Overall Listing, the reduction and normalization of related transaction, the widening of financing channel for listed companies and promoting the listed companies to become stronger.Firstly, the paper states the meaning and characters of private placement, compares it with other means of equity financing, summarize its competitive advantage, and analyzes the different motivations of private placement.Secondly, the paper analyzes the Wealth Redistribution Effect in private placement. In the Wealth Redistribution Model, it is found that because of the discount, private placement increases new shareholders' wealth, decrease the original shareholders' wealth. The larger the offering discount is, the more wealth is transferred. The paper thus evaluates the motivations of related parts under the model.Then, the paper calculates the offering discount and analyzes some cases of private placement. It is concluded that tunneling behaviors exist both in the financing and asset injecting private placement, with some particular investor offering issues below the price limit by means of "choosing pricing ex-date ", "overvaluation with asset injection", "stock price manipulation " to pursue their own interests.Finally, the paper raises some suggestions on resolving the problem of tunneling behaviors in private placement, in aspects of the improvement of pricing mechanism, the strengthen of supervision, and the improvement of corporate governance etc.