Market Effect Of Large Shareholders’ Floating-Shares-Selling

Agency problem between large and minority shareholders attracts close attentionof the supervisors and the scholars by years. In China, as there is huge number of“non-tradable shares”, agency problem is particularly acute. Since2005, Chinaentered into the full circulation of non-tradable share reform era, the full circulationera is coming soon. Taking the firms whose large-stockholders’ have sold the floatingshares in Shanghai&Shenzhen A-share market from2006to2010as the researchobject, this study tries to study the market effect, including price effect and liquidityeffect, of large-stockholders’ float shares selling.According to the research results about price effect, mean cumulative abnormalreturn (CAR) increases before the selling date, and increases more as close to theselling point. After selling, the mean CAR fluctuates in a small-scope interval. Then,we divided the sample into two groups according to whether the selling stockholder isa state-owned-enterprise (SOE) or not. We found that mean CAR increase later if theshorting shareholder is a SOE before selling; and after selling, the mean CARincrease more obvious. The study about price effect indicated that SOE shorting doesgood to the price movement afterwards.And the results of liquidity effect indicate that stock turnover is increased duringthe large stockholders’ selling. However, this effect lasts only among the sellingperiod. What’s more, stock turnover fluctuation is more obvious if the sellinginvestors are non-state-owned-enterprises.This study not only can be used by the regulatory and investors to understand thelarge-shareholders selling and market reaction in the full circulation ear, but alsoprovides empirical evidence to the academic research field.