A Case Study On Illegal Information Disclosure Behavior Of Shandong Tyan Home Co.,Ltd

With information asymmetry in security markets,incompetent listed companies take advantage of their information superiority and conduct illegal information disclosure behaviors to mislead investors into making wrong decisions.Capital flows to these unqualified companies,which makes security markets inefficient.Chinese Security Market has been developing for 30 years.Although we have been trying hard,it is still a severe challenge to prevent listed companies from illegal information disclosures,which seriously harm the interests of investors and render security market inefficient.Based on Information Asymmetry Theory,Principal-Agent Theory,Corporate Governance Theory and GONE Theory,the paper uses case study method and literature research method to analyze the motivations and reasons for illegal information disclosures conducted by Shandong Tyan Home Co.,Ltd(hereinafter referred to as �Tyan')and puts forward proposals to deal with these problems.Tyan went public in 1994.It has been through several transitions and expansions.SEC imposed the severest penalty on Tyan because of its illegal information disclosure behaviors,which involved a large number of people and infringed their interests.The paper analyses the motivations and reasons for Tyan's illegal information disclosure behaviors based on GONE Theory and Corporate Governance Theory.The fundamental motivation of illegal information disclosures was about profit,which can be divided into corporate perspective and personal perspective.The transitions and expansions brought great financing need toward Tyan so that it had motivations to choose not to disclose information about illegal guarantees,debt defaults and significant related party transactions to satisfy issue terms.Also,Tyan had to deal with the special treatment.Zeng Zhaoqin,actual controller of Tyan,tunneled secretly through concealing related party transactions and illegal guarantees.He organized illegal information disclosure activities to satisfy his greed.The reasons of illegal information disclosureactivities were related to the imperfect corporate governance.From the perspective of internal supervision mechanism,Tyan's ownership concentration was high.Also,the board of directors,supervisors and the most of senior executives were controlled by Zeng Zhaoqin.At the meanwhile,independent directors didn't perform the powers of supervision and check.Imbalance of internal power provided opportunities for illegal disclosures.From the perspective of external supervision mechanism,auditors were not diligent nor responsible;the imperfections of security legislation caused low civil compensation rate of small and middle-sized investors;law enforcement was inefficient and the punishments were too mild.The flaws of internal and external supervision mechanisms caused low costs of illegal disclosures,which increased the probability of their emergence.The paper proposes some suggestions to deal with these motivations and reasons and also get some illuminations.In order to improve internal supervision mechanism,Tyan should take actions to reduce its degree of ownership concentration and increase the amount of stocks that are held by institutional investors to optimize its ownership structure.It is also useful to improve supervision mechanism of board of directors,supervisors,senior executives and independent directors.These suggestions are useful to realize internal power balance.There are some illuminations of external supervision mechanism.Improve external audit quality through ensuring auditors' professionalism and strengthening Three-step Checking System.Also there should be stricter supervisions on audit fees and the whole industry.Aggravate punishments and set up a sound �Illegal Information Disclosure Early Warning System� to improve law enforcement efficiency.Establish China Securities Group Litigation System to compensate small and middle-sized investors.The proposals and illuminations mentioned above can increase the costs of illegal information disclosure behaviors,which decrease the probability of the occurrence.