The Analysis On The Tunneling Behavior And Its Impact Of Large Shareholder Of Shanshui Cement Co.,Ltd

With the continuous development and improvement of China’s capital market,more and more companies choose to list to make full use of the resources of the capital market.Due to the unique economic development route of China,many companies have been reformed from state-owned enterprises to private enterprises.However,the governance mechanisms of many companies are still not mature.The failure of check-and-balance mechanism of stock ownership,imperfect board of directors system and weak awareness of rights protection among small and medium shareholders provide conditions for the tunneling of large shareholders.The conflict of interests between major shareholders and small-sized shareholders has become the main agency problem of modern enterprises.The frequent occurrence of major shareholders’ tunneling has brought bad effects to the companies and small investors.Therefore,it’s especially important to thoroughly study the methods and motivations of the large shareholder expropriation and the solutions to the suppression of interests encroachment behaviors.This paper selects Shanshui Cement Co.,Ltd as the case company.Based on the theory of principal-agent theory,private benefits of control rights theory and check-and-balance of stock ownership theory,the paper uses case analysis method and comparative analysis method to study and analyze the causes and effects of the tunneling of the major shareholder in the Shanshui Cement.The main questions answered in this paper are: What methods does the first large shareholder use to encroach the interests of Shanshui Cement and minority shareholders? What are the loopholes that create conditions for the tunneling of major shareholder? What impact does the major shareholder’s tunneling have? Through the analysis of specific case,we can be more targeted to solve such problems.After research,this paper draws the following conclusions.First,the main ways of major shareholder’s tunneling of Shanshui Cement are to issue high salaries to related parties,manipulate the projects bidding and the purchase of raw materials to occupy operating capital,purchase inferior quality production lines and enterprises at a high price,and expel the minority shareholders at low cost.Second,the internal reasons for the first large shareholder expropriation of Shanshui Cement are the company’s relatively concentrated shareholding structure and unreasonable governance mechanism.The specific performance is that the equity concentration is high,the equity check-and-balance mechanism is invalid,the control rights and cash flow rights are separated,the level of private benefit of control is high and the board of directors controlled by major shareholder has not fulfilled the responsibility.The external reasons are that the supervision system is not perfect and the consciousness of rights protection of minority shareholders is weak.Third,the tunneling of the major shareholder has reduced the stability of Shanshui Cement,which has led to battle for control right and multiple debt defaults.The company’s business,profitability,solvency and growth capacity have been greatly affected.Earnings per share,dividends per share and cash flow from operating activities per share have been declining or this company even stopped paying dividends,causing damage to the company and small investors.Through the above conclusions,this paper proposes the following suggestions: First,companies should set up double check-and-balance mechanism of institutional investors and creditors to constrain the behavior of major shareholders.Second,improve the selection and performance appraisal of directors and improve the internal management system of the company.Third,standardize the information disclosure system and strengthen the punishment of illegal behavior.Fourth,reduce the cost and difficulty of rights protection,and encourage small and medium-sized shareholders to defend their rights actively.