The Influence Of Minority Investor Protection To Corporate Valuation

Since China’s securities market established in the early 1990s, it has undergone enormous changes in the past 20 years. By the end of January 2014, The number of listed company in Shanghai and Shenzhen stock market has developed from 14 to 2532, and the total market capitalization is 23.78 trillion, which is 2180 times that of 1991’s. Development of securities market makes tremendous contributions in supporting the economy, expanding financing channels for enterprises and residents, promoting enterprise reform and promoting the awareness of residents to invest.Foreign experience shows that the booming development of a country’s stock market is closely related with the participation of public investors’especially minority investor protection. China has the largest number of individual investors including 90 million securities investors and 60 million public-fund investors, of which more than 99% of the investment amount is less than 50 million, accounting for 14% of China’s urban population. However, due to the time of development is short, relevant laws and regulations of China’s securities market system are not perfect and the operating mechanism of the market is not mature enough, and minority investors are still in weak position, risk awareness and self-protection of whom are not strong. The cases, for example or manipulating the price of stock or forging financial information or making related transactions, to embezzle the interests of minority investors are occurring frequently. This is precisely a reflection of China’s securities market that is short of protecting the interests of minority investors. The lack of protection of minority investors makes it difficult for refinancing and issuance of allotment of listed companies which in the long run will affect the value of listed companies, and thus inhibit the long-term development of China’s securities market. Thus under the new circumstances, it has a significant meaning to explore the relationship between minority investors with firm value.There are many foreign researches about the relationship between minority investors with firm value. The results show that enhancing the protection of minority investors will promote the value of the company mainly from the external macro-environment. The domestic research is more focused on the corporate level, which means the result is mainly based on the perspective of internal governance.Consistent with the finding of foreign researches, domestic scholars also believe that there is a positive relationship between the protection of minority investors and corporate value.After a systematic summary of researches about the relationship between the protection of minority investors and the company’s value, two research ideas of the paper are more novelty. First, different from other scholars, when designing the evaluation index of investor protection, the selected indicators such as the proportion of minority investors ownership, the proportion of non-institutional investors independent director proportion and shareholders’attendance rate of annual meeting, are based on the perspective of minority investors. This makes the index can more accurately measure the true level of protection of minority investors of listed companies. Second, when designing the empirical model, the paper adds the size of the company, asset-liability ratio, profit growth year on year, net return on asset, interest coverage and whether it has been owned by the government, which has excluded the factors that may affect the value of the company so that carried out a more accurate measure between the relationship of minority investors and the company value.Under the guidance of this idea, the paper is selecting annual data of listed companies in SSE and SZSE, building minority investor protection index system and empirical analysis to study the differences of the company value caused by the difference in protection of investors’interests. Results of this study show that the company’s value is closely related to the protection of the interests of minority investors. Enhancing the interests of minority investors has a significant promotion in the value of the company results.The first chapter is an introduction section. After briefly introducing the background and the questions, we focus on the purpose and significance of the paper and then describe the research methods and possible innovations.The second chapter is the theoretical explanations and literature review section. This part firstly introduces the theory of protection of minority investors, and then introduces the theories about the value of the company. The last is about detailed and summarized research findings related to the problems.The third chapter is building a new index system for minority investors to get the index. From the company level, after studying the results of previous studies, we select seven indicators related with minority investors, and then take a variation of the weighting method to design the evaluation index system of minority investors.The forth chapter is the part of empirical research. First, the paper constructs an appropriate model, and extracts some indicator variables in the company’s financial statements. Then on the basis of previous studies, the section presents the level of protection of minority investors with a positive correlation between the values of the company.Finally, take the model result on empirical regression statistical software and analyze the empirical results.The fifth chapter is conclusions and recommendations. Based on the previous results of empirical research, this section presents conclusions and makes recommendations. Finally, this paper summarizes the research limitations.