Control Transfer, Control Contests And Enterprise Value

The relationship between control rights and corporate value is a basic problem in the study of control rights. From the perspective of the western control market theory, reasonable control rights transfer can restrict the managers, reduce the agency costs, thereby increase the wealth of the company. But in our country, due to the market environment and the difference between the selected sample, as well as China’s capital market, equity structure and the system of the special nature, there are great differences in the conclusion of the value effect of the control transfer. With the rapid development of China’s economy, industry transformation and the gradual deepening of the reform of equity division, listed companies began to carry out asset restructuring continuously, and the transfer of control rights is becoming more and more active. At the same time, a series of problems about control contests began to appear. Especially in recent years, listing corporation’s control contests occurred frequently, the form of competition and the role involved is also more and more widely. Although the study about the influence of control transfer and control contests is comprehensive, they are mainly empirical and theoretical research, and because of the differences in the capital market environment and the choice of the sample, it is difficult to draw a unified conclusion, not to mention put forward practical suggestions.Based on the above background, this paper adopt case study method, and choose the largest merger in chemical industry’s – the control transfer of Shanghai Jahwa, to explore the impact of related activities on the enterprise value and its influencing factors. At first, on the base of introducing the basic situation of Shanghai Jahwa case, we review the transfer process, the relevant content of the transaction protocol and the control contests, then exploring the reason of control contests. Next, apply event study and factor analysis method to measure enterprise market and financial performance, so as to investigate whether the control transfer and control contests can improve the value of the enterprise and create wealth for shareholders. And further explore the factors affecting the change of enterprise value.Through the study we found that the control transfer of Shanghai Jahwa acquires good market reaction and financial performance, also the enterprise value has been improved. The source of value creation firstly is Shanghai Jahwa successfully get rid of the shackles of the state-owned system through the control transfer, and thus to optimize the equity incentive and improve market sensitivity. Secondly is the economic strength and sales channels of Ping An Group has brought synergies, Shanghai Jahwa begin to build the blueprint of fashion industry, continue to promote the development of overseas business. Secondly, the control contest between the shareholders and management of the enterprise value has damaged the value of the enterprise. Although Shanghai Jahwa chose Ping An as the investor, which has strong economic strength, investment operational experience and rich sales channels, indeed bringing value to the enterprise after the control transfer. However, due to the different demands of the interests between financial investor and management, plus there is no binding terms are formulated in the control transfer transaction design to resolve differences between the two sides in the business strategy or asset disposal, eventually lead to control contest. And finally the internal friction brings a negative impact on business and market performance, also damages the image of the enterprise and brand, causing great loss to the interests of shareholders. So we draw the following inspiration: Offloading stakes by the means of marketing is an effective way for the state capital to withdraw from the high competition industry. But at the same time, attention should be paid to the improvement of the trading scheme and protocol design, also enterprise should carefully choose the investment side, and to construct the restriction, binding agreement terms. Also, it has great significance to improve corporate governance and the management system to balance the conflict between the major shareholders and management. At last, the government should strengthen the supervision, and to create a better capital market environment for the new round of state-owned enterprise restructuring.