An Empirical Analysis Of The Impacts Of The Reform Of The Split Share Structure On Evaluation Systems

The Shanghai and Shenzhen's Stock Exchanges were inaugurated successively in December 1990. As a result of the policy shares are divided into exchangeable and non-exchangeable shares which are of different values, even if the two kinds of shares come from the same company. This split share structure has made the following functions of a stock market disordered and degenerate: the financing function, the resource relocation function, the price determination function, the economic"barometer"function and the function of capital multiplication. Till April 29th 2005, the experimental reform program of the split share structure was launched by China Securities Regulatory Commission. The reform targets at making non-exchangeable shares exchangeable, meanwhile keeping a good balance of interests between holders of the exchangeable and non-exchangeable shares through negotiations.The reform of the split share structure is regarded as a process of compensation offered by the holders of non-exchangeable shares to holders of changeable shares, that will transfer Chinese stock market into a completely exchangeable stock market and finally into a mature capital market. In this paper, 152 companies within four boards involved in the reform are selected; based on the data of these companies, evaluation systems of A-shares before compensation and G-shares after compensation are constructed and then compared with the evaluation system of H-shares in Hongkong, which is closely related to mainland stock market. The impacts of the reform of the split share structure on the evaluation systems are also quantitatively investigated. Using the evaluation systems we constructed, reasonable compensations were discovered. This paper consists of five parts. Part One introduces the reform process and development of the split share structure, and the strong influences of the reform on the stock market. Part Two focuses on the MFPM model and the ideas to establish the models. In Part Three, the evaluation systems of A-shares and G-shares are constructed, based on the MFPM model, and verified by means of empirical analysis. Part Four is contributed to the quantitative analysis of the impacts of the reform on the evaluation systems. Finally, in Part Five, conclusions and suggestions are made based on our analyses.