Whether The Controlling Shareholders Increasing Stake Has Signaling Effect?

Due to the special nature of China’s stock market, the stake-increasing of controlling shareholders has being the focus of market attention and discussion since it appeared. The event study has certain theoretical and practical significance. After introducing the relevant literature review and institutional background, this paper analyzes the behavior of controlling shareholder increasing stake from the view of signaling transmission firstly and puts forward some propositions. Through empirical analyzing a sample with 434 observations from 2008 to 2012 and the data of finance and stock market trading from 2007 to 2013, this paper tests whether the controlling shareholders increasing stake has signaling effect?First, by choosing paired samples and building Logistics regression model, analyze the motivation of major shareholders raising stake. The empirical results show that:There is no significant correlation between the motivation with whether the stock is underestimated, cash flow, profitability and original stake, a significant positive correlation with the equity balance degree. Non-state-owned controlling shareholders of listed companies have stronger willingness to increase stake. Then, we use the event study analyze the market reaction and build multiple regression equation testing which factors affect the short-term market reaction. The empirical results show that: Around the announcement of increasing stake, there is a significant positive market reaction and the market reaction is unrelated to the increased proportion and the situation of underestimate. The reaction is significantly correlated to the state of the listed company and the happening time of the event. Finally, the raising samples and paired samples were compared about the financial situation before and after the event. The raising samples are significantly better than the paired samples.The results show that:(1) In terms of motivation, there are no financial motives. It is mainly influenced by political factors and excess returns. For more effective control, the shareholders of equity balanced companies are more tend to overweight equities. Compared to state-owned companies, non-state-owned controlling shareholders are more likely to increase stake to enhance investor confidence. (2) In terms of market reaction, on the reasons for government policies and the signal conveyed by shareholders, the investors have Intense reaction and blindly follow the trend of the phenomenon. Investors are willing to believe the government’s bailout behavior, rather than controlling shareholders have confidence in the future development of the company’s performance. With the cumulative incidence of stake-raising event continuing, investor behavior tends to be more rational, market effects are not as strong as before. (3) The controlling shareholder increasing stake really conveys the signal that the company is more profitable.