Study On The Arbitrage Model Of Major Shareholders’ Selling Stock Before Subscribing The Non-public Offering Of Shares

Due to the flexible qualif ication setting system and no profitable requirement, the private placement has become the main way of equity financing of listed companies in China. But at the same time, since it is relevant to the redistribut ion of old and new shareholders ’ interests and under the background of most Chinese companies ’ centralization stock structure, the majority shareholder has the opportunism motivation of controlling listed companies to transport interest to themselves by taking advantage of private placement. And buying dips and selling rallies is considered to be a typical representative of this behavior. Controlling shareholders will sell their shares at a high price, then repurchase non-public offering of stock using the funds which they sell stocks. They can not only obtain huge benefits through the price margin, ensure the control status of the listed companies, and even to lower subscription price lock ahead of possible capital gains in the future. This risk-free arbitrage model not only clearly using regulatory loopholes, is a more serious infringement of the interests of minority shareholders compared to the traditional reduction. In view of this, this paper hopes to analyze the arbitrage model deeply, of which controlling shareholders selling their stock at the first time, then purchase of non-public offering of shares and the profit chain existing in it through a case study, in order to draw inspiration and to provide reasonable suggestions for improving the information disclosure system and the private placement system, effectively protect the legitimat e rights and interests of minority shareholders, and promote the sustained and healthy development of the capital market of our country at the same time.This paper gives a profound analysis of the case of GEM-YEAR INDUSTRI AL CO., LTD’s largest shareholder sold a large volume of shares firstly, and then bought all the non-public offering of new shares. First of all, this paper presents research background and research signif icance, and then summarizes previous research achievements from two aspects of shareholders’ sales and private placement; secondly, defines and explains the related concepts and theories, and introduces the institutional background, the collation and analysis of information disclosure system and private placement system; thirdly, introduces GEM-YEAR INDUSTRI AL CO., LTD briefly, its largest shareholder ’s process of selling stock and the issuance process. The essay tests the market reaction and the timing tendency of the shareholder ’s selling stock through the event study, then through the method of qualitat ive and quantitat ive, horizontal and vertical comparison, the paper analyses the impact of the shareholder ’s selling stock on the private placement price, the real purpose of issuing shares, the relationship between reduction and private placement and so on. Finally, this paper summarizes the main conclusions, and put forward some policy recommendations.Based on the analysis of theory and the case, this paper finds the following main conclusions:(1) the major shareholder of the listed company got abnormal return which beyond the market average in the process of reduction by exploit ing his information superiority;(2) when the behavior of signif icantly reduction is complete, the company immediately launched the non-public offering plan only for the largest shareholder, the purpose is not only supporting the development of the listed company, but making a lower issuance price by locking the low price period which the price has not yet been restored when judging the stock will be ris ing sharply with the business performance improvement and the favorable industry policy. Doing like this not only can save a large subscription cost for themselves, at the same time, seek a higher interest return opportunity in the future. In determine the price will be affected by the irrational market to fall, the listed company are responding to withdraw the non-public offering plan, which bolstered the true intent ion of the shareholder taking advantage of its information superiority and control to jockey for an unreasonable return. In order to reduce the number of such behaviors which large shareholders wantonly infringing upon the interests of minority shareholders in this way, this paper puts forward the following suggestions:(1) to further improve the reduction of shareholders information disclosure system;(2) clear the base day of pricing ex-date of private placement;(3) set up the non-public offering price adjustment mechanism;(4) to give minority shareholders more say.