China's Major Shareholders Of Listed Company Shares To Increase Motivation And Its Market Response

In the countries and areas with poor law protection of medium and small investors, like European Continent, Russia, East Asia, ownership concentration and large-shareholder-control are prevalent in listed companies. Large shareholders earn information advantages as they control or greatly influence the general meeting of shareholders and board of directors, make appointment of the management. Under the background of financial crisis and stock market crash, the China Security Regulatory Commission (CSRC) issued the "Decision on Amending Article63of the Administration Measures on Takeover of Listed Companies" in27August2008, allowing large shareholders, those with more than30%shares of a listed company, to buy no more than2%in a year and be exempt from tender offer obligations. Since then, the A-share market has seen a proliferation of share-raisings of the large shareholders. Researches on this topic began to get close attention.This paper introduces the institutional background of share-raising of large shareholders. Based on a sample with205observations from27August2008to31September2011, it finds out that most of cases happened in the second half years of2008and2011. On average, large shareholders raise0.38%for the first time and0.73%cumulatively.This paper builds a logistics model and a linear model to exam the probability and percentage of share-raising respectively to probe large shareholders’motivations. It divides the observations into2sub-samples to exams the dynamics of the motivations. It finds out that:(1) the probability and percentage of share-raising are not correlated with equity undervaluation in2008, while the relationships are significantly positive in2009to2011.(2) the probability of share-raising is negatively related with the shareholder’ control power and the relationship is significant in2008; the percentage of share-raising is significantly and negatively related to the shareholder’ control power.(3) the probability of share-raising is smaller for state owned enterprises than for private enterprises, especially in2009to2011; the percentage of share-raising is lesser for state owned enterprises than for private enterprises, but the relationship is not significant.(4) the market reacts positively to share-raisings of large shareholders. The average CAR(-1,1) is2.72%. The market reaction is significantly and positively with the percentage of share-raising. The empirical results indicate that:(1) in2008, the motivations of share-raising of large shareholders are to enhance control power and to response to the appeals of CSRC and SAAC (State Assets Administration Committee);(2) in2009to2011, the motivations of share-raising of large shareholders are to set up a signal of equity undervaluation and to enhance control power;(3) the market reacts positively to share-raisings of large shareholders, and the market reacts more positively when large shareholders raise more shares, which is consistent with the signaling theory.