A Research On The Introduction Of Prefferred Stock In State-owned Enterprises

Preferred stock is a kind of hybrid securities, which combines the characteristic of stock and bond. Because of its multiform, preferred stock can meet the requirements of different financiers and investors. Besides the traditional financing vehicles, preferred stock could provide a useful complement for companies.Preferred stock gives preferred share holds priority in dividend payout and residual properties. In general, it also places restrictions on management right and the voting right in the shareholder meetings. On the one hand, since the 2008 financial crisis, state-owned companies in difficulties of financing had found that it used to be very difficult to borrow from banks and issue shares or bonds, quite a few companies turned out to be capital-starved businesses in the end. On the other hand, with the enterprise restructuring, state-owned enterprises have met many bottlenecks. The company peers have different rights, leading to chaos in the equity ownership structure. Rely on their dominant position, controlling shareholders and senior management personnel violate the interests of minority shareholders and state assets, causing tremendous losses of state-owned assets. In this case, it is necessary to introduce a new practice system to break the equity structure of state-owned enterprises. It can help perfect the governance structure of state-owned enterprises, and protect the rights of minority shareholders. And the utilization of foreign preferred stock has shown tremendous advantage of preferred stock in the field of financing and corporate governance. Academia and practice call for it strongly. Based on this, the China Securities Regulatory Commission issued< Pilot Administrative Measures for Preferred stock> on March 21,2014, marking the formal establishment of the system.The first part of this paper reviews the legislation situation of our country system of preferred stock. It introduces the specific content and the practical application of preferred stock in different period. The paper wants to find out why the system failed to widespread use in our country. Thus, it can lay a theoretical foundation for implementation of the preferred stock system in the present stage of China. In the second part, the paper describes the disadvantages in the reform of state-owned enterprises. The third part compares the preferred stock, common stock, and corporate bonds. This paper expounds the nature and legal characteristics of preferred stock, and tries to find out the feasibility to put the preferred shares into state-owned enterprises. The fourth part describes the protection method of preferred shareholders rights.Through the theoretical and practical proof, this paper introduces the system of preferred shares of state-owned enterprises which is conducive to the development of state-owned enterprises. However, we should pay attention to the preferred stock system in the process of application in China, since it is set up to adapt to China’s market and legal environment. And it should not be too loose or too tight. Too loose is easily leading to market disorder, on the contrary, it would result in bound market dynamics, failing to play its the basic role of resource allocation in the market. Lack of voting rights and management rights, preferred shareholders may face the problem that their interests may become one of the most vulnerable to be infringed. Therefore it is of great priority to set systems to protect shareholders rights so as to maintain the enthusiasm of investors, the stability of the market and promote the development of the system of preferred stock.