The Research Of Senior Executives’ Reduction Of GEM-listed Companies In China

In October 30, 2009, China’s first batch of 28 Growth Enterprises Market companies was listed in the Shenzhen Stock Exchange, marking the formal establishment of GEM in China. The birth of GEM undoubtedly plays an important part for those small-scale companies that bear high growth and innovation. Since they are not able to be listed on the Main Board, GEM provides them with convenient financing channels, fair market competition environment and thus is an important part of the capital market in china.However, in the course of development, various problems in the GEM market have become increasingly prominent, the focus of which is the reduction of stocks by senior executives. This has been the common concern of various circles of society. In November 1,2010, the shares of 28 first batch GEM companies were lifted and this opened the curtain of reduction by executives. From then on reduction boom has been growing vigorously, and many senior executives even select resignation to reduce shares. This undoubtedly exacerbates the GEM market turmoil and damages the confidence of investors.This article is based on this background. It is mainly divided into two parts: the first part is the study about the influencing factors of senior executives’ reduction of GEM-listed companies. There are 2782 sets of reduction events in all until December 31,2013 and OLS multiple linear regression method is used. The results show that the proportion of reduction by executives has significantly positive correlation with the proportion of shares held before reduction and significantly negative correlation with the price, macro-economic climate index and cash flow ratio, while other variables like firm size, executive compensation and independent director scale do not pass the significance level test. Also the optimization model passes the robust test.The second part is the research of the effect on corporate performance by senior executives’ reduction. The author selects all 96 GEM companies which underwent reduction by executives in 2012 as sample and 23 financial indexes to respectively represent the profitability capacity, long-term debt paying ability, short-term debt paying ability, operating ability, cash flow capacity and development capacity of those companies. This paper uses principal component analysis method and Wilcoxon test method to compare the differences of financial performance between 2011,2012 and 2013 so as to test the effect of senior executives’ reduction. The results show that senior executives’ reduction has a significantly negative impact on the company’s financial performance, and the influence is not temporary, but shows some continuity.