Research On Preferred Stock Mechanism In China

Preferred share, as an outstanding financing tool, is widely used in internationalinvestment and financing. However, it does not exist in China stock market. Worse still, it islack of laws and regulation. With the fast development of domestic economy, the difficultyin business financing as well as the singleness of equity market form has always beencriticized by the industry. In2012, after a long period of bear market, the authorities decidedto suspend the audit of new shares in order to boost market confidence. Restarting the IPOhas been like a sword hanging in the hearts of thousands of investors. Recently, CSRCdeclares that they support some banks issue replenish capital of preferred stock so as toreduce the draw-blood effect on the capital market. The trial of preferred shares is about tooccur. In March2014, CSRC issued the Preferred Stock Pilot Administrative Measures,which set regulations on preferred stock system systematically. Although, it is not a wisemove to rely on the rules.instead, they should modify the Company Law in a proper timingto improve the legal system of preference shares. Hence, it is necessary to do deep researchand analysis in preferred stock system. In this paper, I draw on the experience of Westerncountries and combined with the actual situation in China, and propose innovativelegislative mode in establishing Preferred Stock System in China.In this paper, I start with some relevant concepts of preferred shares with briefdiscussion of the concept, features and types of preferred shares. After that, I focus on theanalysis and comparison of the evolution process of America preferred stock objects, aswell as the selection of applicable preferred stocks for later discussion.The author uses literature, comparative study and other methods to select and analyzesome preferred legal systems representing German civil law and common law in the UnitedStates, and describes the different legal systems in different countries in order to study theestablishment of preference shares on the domestic system.personally speaking, creation ofthe preference shares system shall base on amending the "Company Law" by referring topast cases. For the detailed problems, they should let the companies to decide by themselves.Besides, the legislation should avoid excessive use of mandatory provisions.Last but not the least, basing on the company contract theory, I have proposed the idea that we should adhere to the spirit of the contract when designing preferred stockoptions contracts. Government and regulators should play a guiding autonomous andinnovative of the equity markets and monitor other issues such as information disclosure oflisted companies.