A Study On The Largest Shareholder's Propping And Tunneling Behavior Under The Post-period Of Non-tradable Share Reform

When the Chinese stock market was established, the shares were divided into two parts, one of which was called non-tradable share and the other was called tradable share. Because most of the non-tradable shareholders were the largest shareholder of the listed companies, the orientation of the interests between major and minor shareholders was different.The Non-tradable Share Reform makes the interests between major and minor shareholders into the same. As a consequence, the pattern of the largest shareholder's behavior will be changed and how the largest shareholder's behavior will affect a listed company's performance will also be changed.Based the largest shareholder's revenue and cost function, a theoretic model on the largest shareholder's behavior, i.e. the asset injection, under the Non-tradable Share Reform is built. Through the analysis of the model, a study on the impact of the Non-tradable Share Reform on the largest shareholder's behavior is made. One empirical analysis is used to test the rationality of the model and another empirical analysis is used to study what impact the largest shareholder's behavior will have on a listed company's performance.The theoretic model suggests that the largest shareholder's net income is positively related to the largest shareholders'ownership ratio, the scale of assets injection and PE ratio. Also, if the injected assets can cooperate with the listed company, the largest shareholder will have more motives to prop the listed company. Besides, considering the market value of the largest shareholder's shares, he won't tunnel as many as what he did before the reform. And the assets injection after the Non-tradable Share Reform has a more positive impact on the listed company's performance than before the Non-tradable Share Reform.The empirical analysis partly supports the conclusions above.