Impact On The Interest Of Medium And Small Stock Holder By Private Placement

Since the reform of Equity Division, private placement has become the main equity refinancing method in China's capital market. The reasons why private placement is widely welcomed are as below. First, private placement has a "One simple and three low" characteristic. Second, the lock period of stock in private placement can reduce the impact on the secondary market. Third, through private placement, the performance of listed companies may be improved by injection of quality assets and integration of upstream and downstream business. Last, the management of listed companies may be improved by the introduction of institutional investors in private placement.However, because of that private placement can be only conducted within top 10 main investors, and a high centralization of majority vote right, the major shareholders have the opportunity and motives of gaining profit in private placement. Science the legal and regulatory systems are not perfect, it is a strong possibility that listed companies intend to gaining benefits in the implementation proceeds of private placement.Background on such situation, this article deeply analyzed the impact on the interests of small investors by the implementation of private placement. First, the article analyzed the development and current status of private placement in China. Then, the theoretical part summarized research results on private placement from a large number of scholars at home and abroad. At the empirical part, the article selected private placements in 2006 as samples, and studied the impact on the interests of small stock holders by private placement wholly within major shareholders, institutional investors, or a mixture of two types, from views of both short-and long-term. Such empirical study found that private placement wholly within major shareholders damage the interests of small investors most, the infringement can be done by depressed stock prices, dividends, arbitrage higher price shares with low-quality assets, etc...Through both theoretical and empirical research, the article bring forward several proposals of how to protect the interests of small investors by perfecting relevant laws in the private placement area and improving the governance of listed.