The Situation Analysis Of Minority Investor Protection In China

With a huge success in the development of security markets in China in the last decades, the investors have supplied great capital to the whole markets, while their benefit has been encroached seriously sometimes. It has been an important theoretical and practical subject causing great interests in Corporate Finance. Lots of studies have shown that the protection of investors’ interest is the key of corporate governance and has great impact on the healthy growth of security markets. So in purpose of ensuring the sustainable development of the stock markets in China, it’s of great importance to discuss the situation of shareholders protection in China and then make suggestions.This paper begins with the definition of investors and investor protection and reviews the related papers discussing the investor protection from different2views: the Contract Theory and the Law Theory. According the main opinions from Law Theory, the laws provide the core protection for the outside investors. The Common Law countries provide better shareholders protection than the Civil Law countries. Besides, it’s not only the law system but also the law enforcement efficiency would also make a great influence on the level of shareholder protection.Thus a discussion is held in this paper to discuss the current situation of the law protection for shareholders. The history and reform of related laws and regulations show that development of shareholder protection has taken place in China and experienced a growth in the level of investor protection. After comparison with other countries with LLSV’s indicators, we find that the law system in China has reached the average level of the world and provide with a complete law system for shareholder protection to some extent. However the Civil Compensation System is still lack of efficiency in China and the Compensation System for encroached investors need to improve. Future, this paper, using event study, examines the penalty enforcement efficiency of security regulation with the sample of listed companies violating the laws and regulations from2002to2013. Theoretically, strengthening the law enforcement will restrict the action of potential law-breakers and provide the outside investors with better protection. Thus the penalty of law-breaking companies shows the market the determination of no-tolerance of expropriation actions on outside shareholders, and should be favored with the investors. However the test shows that after the announcement day of penalty of breaking-laws companies, the investors are suffering from negative abnormal returns. The test ends with the outcome that the Security Regulation on Shareholder Protection in China is still suffering from non-efficiency, therefore in the end of this paper presents a modification to the security regulation enforcement in China.