Research On The Abnormal Return Of Large Shareholders’ Sale On GEM

Since2009, people began to pay attention to the GEM market, because of its significance to China’s capital markets. But since the GEM opened four years ago,the number of companies listed on GEM increasedgradually, as well as large shareholders’sale on GEM. for example, in the first half of2013there werelarge number oflarge shareholders’sale of nearly140companies listed on GEM, the money of sale reached7.165billion yuan.This phenomenon arises because of the GEM large shareholders have a strong incentive tosell stocks they held, the phenomenon that large shareholders sell their shares has occurred frequently. There are two reasons to explain this phenomenon. First, large shareholder need to sell their shares so that the wealth acquired from the EPO market can become money. Secondly, the high valuation of the GEM stocks tend to shares sale from large shareholders.In2013, for example, the cumulative gains of GEM stocks reached83.23%, but the net profit has increased by only4.92percent. Overvalued stock market will inevitably lead to large shareholders tend to stock holdings.In the process of reducing shares, large shareholders not only have the ability but also have the motivation to obtain abnormal returns through their information superiority. large shareholders have information superiority compared to other small shareholders and potential investors, they were able to have more accurate understanding and judgment about operating and financial information of listed company, and even some large shareholders able to influence the content and timing of information disclosure of listed companies through its control of listed companies. This information advantage exists and is likely to suffer interests of small investors.Therefore, we need to discuss the following questions in this paper (1)canlarge shareholder who has information superiorityable to get abnormal returns through the reduction of shares?(2)can large shareholders with different information superiority acquire different abnormal returns?(3)do large shareholders use or manipulatedinformation disclosure of listed companies during the reduction process?In order to answer these three questions, this article need to determine the object of study of the paper, the criteria for the classification of the study and framework of thesis research.Firstly, we select the large shareholders as the research object which is selected in the2010to2013about the GEM data, to verify whether the GEM large shareholders take advantage of their information advantage to get abnormal returns and also obtain the highest abnormal returns by timing ability.From abroad Literature, foreign scholars main focus on the research which is conducted around the company’s executives to explore whether executives can obtain abnormal returns in the reduction behavior. From the domestic literature, our research focuses on the reduction of the share from the large shareholder,In2010listed company’s executives on GEM began reduce share, so the direction of our research was in favor of the reduction behavior of the GEM executives, few studies the behavior of the large shareholders, because executives occupy a significant proportion of insider trading on GEM, but these documents are ignoring that many senior executives of listed companies on GEM is also its largest shareholder of the company.Secondly, this paper will study large shareholder’s sale on GEM from the perspective of shareholder’s relations to ensure whether different information superiority can lead to different abnormal returns in the reduction process or not.From the foreign literature,, scholars use the different positions of executives to distinguish whether they have different information superiority or not, and study how different information superiority effect abnormal returns.From the domestic literature, scholars use the ownership structure and character of ownership to study different abnormal returns.But the literature ignores the effect of shareholder relationship on information superiority. The controlling shareholder has the largest information superiority, but the non controlling shareholderwho has a relationship with the controlling shareholder can use the intimate relationship between itself and the controlling shareholders to obtain more information advantage. So this paper will make up for the deficiency of this research field from the perspective of the relationship between the shareholders.Third, this paper will study the regular earnings announcement which is published before or after reduction, to verify whether the large shareholders use their information advantage in the reduction process.Finally, in order to test the reliability of the results proposed by this paper in different conditions, the samples are classified according to the nature of the reduction shareholders and the nature of the listing Corporation.This paper consists of six chapters:The first chapter is the introduction part, introduced this article research’s background, the necessity and the significance of the research.The second chapter is literature review. The purpose of this part is to summarize the previous literature. From the literature review, this paper also found that the previous research on large shareholder’s reduction studies has some miss, the missing part construct this paper.Three is the theoretical analysis and the research hypothesis. This section will provide three hypotheses and the theoretical basis for this hypothesis.The four is the descriptive statistics of the sample. This section describes the process of data collection and data processing method.The five is the empirical study.The six is a summary of the contents of this paper.Through descriptive statistics and event study method, this paper draws the following conclusion:First of all, large shareholders can obtain abnormal returns through the reduction of large shareholders, and reduction always occurs at the highest point of the abnormal return.Secondly, in order to verify role of the information advantage in the reduction of large shareholders, the top ten shareholders are divided into three categoriesaccording to the different information advantage. The results show, shareholders who has more information advantage acquires higher abnormal returns compared to other shareholders. However, the stock market and the regulators did not give enough attention and supervision to those shareholder who has more information advantage andgets maximum abnormal returns. Third, this paper found that the large shareholders tend to release more regular earnings announcement before they sell share; andlarge shareholders also tend to sell share after the good earnings announcement.Finally, using share nature, size of the company, company performance and shareholder type to classify samples, the study found large shareholders can obtain abnormal profit from reducing in all circumstances, and the related shareholder with greaterinformation advantage always get more abnormal return than other large shareholders without relation.The main contributions are as follows:One is to shift the focus from the executives to the large shareholder. The previous literature on the gem focus on the executives. But we find that many original shareholders are private enterprises and individuals, so many executives on the GEM Listing Corporation is also the large shareholder.Two is transferring the research focus from ownership structure to relation between the large shareholders.This paper put forward the following suggestions:1increasing supervision strength about shareholder sales. First of all, large shareholders regulators can set longer advance notice time limit and not just the2day advance notice. Secondly, large shareholders can not occur reduction after positive earnings announcement within a specified time, or reduction behavior must be noticedenough time within a specified time.2expanding the scope of regulation about the large shareholder reduction on GEM.3investors must be more cautious about investing in gem stocks.But this research also has certain limitation:1samplesize about shareholders is small.2only short-term market effect is considered.