| The executives of the company can trade their shares freely in the stock market owing to the smooth progress of the reform of non-tradable shares and the issuing and implementing of the "Administration Measures on equity-based incentives of listed companies". Between the end of2008and2011, a proliferation of shareholding increase of listed companies’ executives can commonly be seen in the secondary market of the A-share market. The specificity of the executives’ status has called high attention to their shareholding increases in the secondary market. Firstly, executives are so much more than simple investors, also, they are direct executives and inside traders who have deep knowledge of the company and always keep in close touch with the most accurate and efficient information. Therefore, executives’ shareholding increase appears to be so "meaningful". More and more people are interested to know why executives will raise more shares using their "own" money, and what are the motivations? Whether "management holding stocks", which are common to see in the market, are worth investing in? Why executives do more share-raisings in the bear market or in the responses to the government policies? Whether executives do the share-raisings to meet the government’s need to stabilize the stock market or not? And after the executives do the share-raisings, what is the stock market’s understanding and reaction? Literature is rare in the field of executives’ shareholding increase events. So many questions there force us to do more researches on this topic to provide more literature to the theoretical and practical world. Hence, this paper chooses executives’ share-raising activities during2008and2011as research subjects to analyze the behavioral motives and market reactions of the executives’ shareholding increase, adopting the very method of combining theoretical analysis and empirical research. This paper totally has six chapters. The summarizations of each chapter are as follows:Chapter one is the preface.This chapter is divided into four parts:firstly there is an introduction about the background. Then, objectives and significances of the research are given. Secondly there is an introduction about the research methods and research thinking, also this paper’s framework structure is provided. Thirdly there are definitions of the most important concepts in the paper, and finally the possible innovations are prepared.Chapter two is literature review.This chapter is divided into three parts:the first part is the combing about the researches on the motivations of insider trading abroad and domestically. And we can see that the motivations of the insider trading are so complicated. They can be balanced investment portfolios, manipulation of stock prices, capital liquidity demand, the accessing of control requirements, signal transmission needs, or catering to the government regulation and so on. After reviewing relevant literature, this paper sets the motivations of the insider trading into two groups: one is economic motivation, and the other is political motivation. There are mainly two parts of the economic motivation:the first one is the pursuit of increasing monetary income, and the second one is the pursuit of the welfare improvement (like insurance and houses). According to the existing researches, economic motivation can explain most part of the motivations of insider trading, so this summarization sounds relatively reasonable. Political motivation includes political promotion, personal status’s improvement, and the acquisition of the political support and so on. Researches on the political motivation are quite necessary for the reason that our government plays an important role in the domestic capital market as well as government policies have major influences on the market. The second part is mainly a review about the market reactions of the executives’ shareholding increase. The literature on this topic is so little that there are only three pieces of it academically in the country. And for this reason this paper learns from two similar researches:one is the research on the market reaction of major shareholder’s holding increase, which is also a kind of insider shareholding increase, like executive shareholding increase. The other is one of the main research directions, which is the market effect of the stock repurchase in the listed companies. Similarity exists between stock repurchase and management share holding in the theoretical analysis for the two are both belong to insider trading family. Based on the existing literature, insider share-raising or share repurchasing can cause obviously positive reaction of the market, which provides this paper some thoughtful insights. The third part of the review is about the general comments of the literature:combing and summarizing the perspectives, methods and conclusions of the existing researches, looking for the limits of them, and extracting some useful points for this paper.Chapter three is about "theoretical basis and institutional background"This chapter is divided into two parts:the first part explains the contents of the "asymmetric information theory, the consignment-agent theory, signaling theory, market timing theory" used in the paper and the connection between these theories and this article. The asymmetric information theory, the consignment-agent theory, and signaling theory are mainly used to explain the information differences, in this paper settled by share-raising as the executives expected, between senior managers and investors in the market, meanwhile market timing theory explains the "timing" which might be existed in share-raisings. This timing theory is a continuation of the classical timing theory mainly used in explaining the financing behavior of enterprises. Decisions of issuing shares or repurchasing shares will be made by the enterprises according to whether there is false equity evaluation in the market or not. By the same way can the "timing" of the executives’shareholding increase work.The part of institutional background reviews relevant laws and principles of senior executive shareholding increase according to the research topic in this paper. Executives’free trading of stocks in the secondary market are mainly contributed by two principles:the first one is the reform of non-tradable shares, which allows executive to trade their stocks in the market as they wish to, and the second one is managerial equity incentive, which provides institutional basis for executives’ stock ownership. In a word, this chapter summarizes relevant laws and principles about the reform of non-tradable shares, equity incentive, as well as laws and principles restricting the percentage of executives’shareholding increase, the locking period and the time of announcement. Chapter four is empirical research about the motivation of major managers’ shareholding increase.Multiple-regression model is adopted in this paper to analyze the motivations of executive share-raisings. Variable being explained is the percentage of executives’shareholding increase, acting as the proxy variable of the willingness for the executives to raise their share holdings. Explanatory variables are given as follows:motivations of executive share-raisings can be divided into economic motivation and political motivation. On account of the recent condition of our capital market and methods as well as findings of other scholars, economic motivation can be divided into signaling motivation based on enterprise performance, timing motivation based on stock market, and motivation based on refinancing needs. At the same time political motivation can be divided into political motivation based on business executives’"political relationship", and political motivation based on enterprises’nature. Then hypothesis and verification follow up, utilizing multiple-linear-regression model to analyze the motivations of executive share-raisings, changing proxy variable in the analysis to conduct robustness test in order to add the credibility of the results. The results show that executives do share-raisings mainly for economic reasons but not for political reasons in the long term. Those two economic motivations, timing motivation when the market is in downturn and the stock price is underestimated and motivation of increasing stock price to refinance or unlocking the non-tradable shares, contribute to the share-raisings according to the results, and the last economic motivation, based on that executive share-raisings are caused by enterprise performance, is not verified. In the mean time "undervaluation hypothesis" in the stock repurchasing research shows that there is a motivation for the executives to signal the information of the stock price being underestimated. But whether this hypothesis will be accepted by the market needs more evidence.Chapter five is about the study on the announcement effects in the market of major managers’shareholding increase. Companies, which announce their executives’share-raising activities, are chosen as research samples. Then the event study method is employed to analyze the reaction of the market. The results show that the announcement can lead to obviously positive excess returns in consequence, which also have lasting effects. Considering the motivations of the executive share-raisings in the last chapter, we may think that maybe the market accepts the equity underestimation signaled by the executives’share-raising activities? As it is known to all that the stock market in our country is strongly characterized by "political policies", the information conveyed by stock price possibly will be weakened somehow. Thereby this paper does some further researches on influencing factors of the effects of executive share-raisings, and it turns out that the market doesn’t react to the underestimation of the stock price. So, we find the hypothesis of signaling motivation failed. The positive reaction of the market is generated by "herd instinct" rather than some other causes, for the reason that the investors in our stock market only just see the events of executive shareholding increase themselves as signals of story stocks.Chapter six is about the conclusions and recommendations.We get these research conclusions based on the results in the empirical research in the fourth and fifth chapters:executives raise shares for timing motivation when it is in the bear market and the stock price is in its downturn, and for the accomplishment of some "big events", for example, the refinancing activities and the unlocking of the non-tradable shares rather than the reasons of the performance and development ability of the enterprises as most people thought.In the long run government’s rescuing policy for the stock market’s stability plays a limited role for the reason that executives raise their share holdings not for political reasons but for the interests they can grab at this very moment when the government stabilizes the stock market, what’s more, executives without political relationships take more action. When it comes to the market reaction to the executive share-raisings, we find that the investors in the market treat the events of executive share-raisings themselves as indicators for story stocks, react to them and make profits. All these results suggest that executives’share-raisings are more likely to be "shows", and to a certain degree indicate that our market is not very well developed, and by the same time reveal that information asymmetry exists commonly in the market, which contribute to the "speculation" and "herd instinct" in the stock market.Several suggestions are given there in order to get these above problems settled:in the perspective of protecting investors, executives’share-raisings must be strictly restricted. The information disclosure mechanism should be thoughtfully built to prevent the executives from benefiting themselves by exploiting the policy of the government and the enthusiasm of the investors. In the perspective of legislation, we suggest that we can learn from the practice of the United States and carry out special laws and principles on insider trading. In the perspective of government administration, government will be advised to have less control on the market, letting the market play a more important role. In the end, there are limitations and future directions of this research.The contributions of this paper are:Firstly the topic of this research is quite new to some extent, enriching the study of enterprise insider behaviors under the background of full circulation. Although executive shareholding increase has already emerged in large scale since2008in our stock market, there are few papers on them. When it is the times of full circulation, insider trading becomes more frequent, complicate and purpose unpredictable. Therefore research on insider behavior appears especially urgent. This paper adds to the researches on this topic.Secondly, the findings in this paper can deepen the understandings of the regulators and investors on executive share-raisings. The results show that executives raise their shares not for the enterprise performance and future development, but in most cases they are just acting as bottom fishers and speculators.In the short term, excess return will be made because of the "herd instinct" in the market. But in the long term, considerable risks will exist in these stocks because of lacking support for the economic performance of them. Hence, regulators should strictly restrict executives’shareholding increase, and investors should also have a rational look at the so-called "management holding" stocks while having a second thought about the "following up" of these share-raisings. |
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