On Motivations And Economic Consquences Of Reduction Of Major Shareholders

Since the reform of non-tradable shares,many non-tradable shares have begun to enter the capital market,which has slowly opened the prelude to the reduction of shareholders.However,the excessive concentration of shares of public companies in China often shows the characteristics of ownership concentration which leads to the difficulty of effective supervision of the power of major shareholders.Major shareholders may use control rights to seek private benefits,thus transferring the agency problem to the conflict of interests between major shareholders and minority shareholders.Recently,in the capital market,some major shareholders firstly reduce their holdings,and then lend the proceeds of the reduction to the public companies to "propping".On the surface,this is a kind of major shareholders’ support for public companies,but it is possible that major shareholders can seek private benefits by this way.Therefore,in order to more accurately explore the motivations and economic consequences behind the reduction of major shareholders,this paper takes Shandong Molong Petroleum Machinery Co.,Ltd.as a case,uses case study method to analyze it in detail,and puts forward corresponding recommendations.The innovation lies in two aspects: firstly,this paper studies shareholders’ behavior of reduction and offering a loan from the perspective of seeking private benefits,and makes a thorough analysis of its motivation and comprehensive economic consequences;secondly,from the perspective of interim report disclosure system,this paper puts forward relevant policy recommendations to deal with major shareholders’ tunneling.This paper takes case study as the research method and selects Shandong Molong Petroleum Machinery Co.,Ltd.as a case to study the motivations and economic consequences of major shareholders’ reductions.Firstly,this paper mainly describes the research background and significance,reviews and collates the relevant literature on the motivation,economic consequences,tunneling and propping behavior of major shareholders;secondly,it analyses the current status and problems of the reduction of major shareholders and the four aspects of performance prospects,high valuation,liquidity demand and seeking private benefits;thirdly,it introduces the industry situation and the company situation,and the performance situation and the process of major shareholders’ reductions provide the basis for the following case analysis;fourthly,for the case analysis,the motivations of the reduction is analyzed from the four perspectives of performance prospects,high valuation,liquidity demand and seeking private benefit,and its economic consequences are analyzed from the two aspects of market reaction and minority shareholders;finally,for the conclusion and policy recommendations,the main purpose is to state the relevant conclusions,innovations and limitations,and put forward corresponding policy recommendations.Through the case study,this paper draws some conclusions: firstly,from the perspective of reduction motivation,shareholders’ reduction and propping behavior are not all support to public companies,and behind it there is the possibility of tunneling;secondly,from the reduction consequences,the reduction to propping may have a negative market reaction,but the degree of reaction can be reduced by further disclosure;thirdly,the imperfect system of interim financial reports is possible to offer major shareholders an opportunity to tunel pubilc companies;fourthly,as a means of financing,reduction of stocks needs to be used carefully,because it will bring convenience to the company,but also cause negative impacts.Therefore,this paper puts forward three suggestions on preventing major shareholders from tuneling: firstly,companies should establish effective shareholders’ balances mechanism to supervise and correct the power of major shareholders and prevent major shareholders from using control power to seek private benefits;secondly,companies should complete the construction of internal controls;thirdly,the government should continue to improve the relevant legal system of capital market in order to prevent some companies from using the policy of interim reports to avoid supervision,especially the information disclosure system of interim financial reports;finally,regulators should strengthen the supervision of the implementation of information disclosure,and strive to improve information transparency to protect the capital market.