Study On Institutional Investors And Tunneling Of Major Shareholders In Private Placement

After the share splitting reform, the private placement became the main stream ofequity refinancing placement for the public companies which has the characteristicsof simple procedures, operating conveniently and quickly over Chinese capital market.It can be said that the rise of private placement is closely connected with thesuccessful implementation of the reform of non-tradable shares. But the privateplacement is easily used as a mechanism for tunneling benefits by major shareholderunder the system background and company structure characteristics of our country.Then, whether there is tunneling benefits in private placement under the control of thelargest shareholder. If there is, will institutional investors called “spokesman” of smalland medium shareholders inhibit major shareholders’ behaviors of tunneling? If thereare any differences in inhibiting tunneling between different institutional investors?There problems are worth thinking and concerns.This paper divided the whole sample of listed firms which from Shenzhen andShanghai A-shares market that conduct private placement from the year2006to2012into two groups: one is the group of large shareholders, the other is the group ofinstitutional investors. By event study, we reveal that, there generally exists stockprice manipulation by large shareholders in the group of large shareholders, whichgiving some evidence of their tunneling through lowering the stock price. Then, wetakes the discount rate to be explained variable, and tries to build a multivariateregression model to further analyzing of the role of institutional investors in the"tunnel" behavior. Through the regression result, it can be concluded that institutionalinvestors can’t inhibit the tunneling of large shareholders in private placement, evenbecome a powerful “assistant” of large shareholders in private placement at a discount.What’s more, different types of institutional investors make different roles ininhibiting the tunneling. Independent institutional investors in private placement has astronger conspiracy with large shareholders relative to dependent institutionalinvestors. Finally, the paper raised some suggestions on resolving tunneling behavior in private placement, in aspect of improvement of pricing mechanism, increasingsupervising of the various stakeholders in private placement.