Analysis And Prevention Of Tunneling Behavior Of Major Shareholders

After more than 20 years of development,China’s capital market has made remarkable achievements.Since the implementation of the reform of non-tradable shares in September 2005,the capital market has officially entered the era of full circulation.However,this policy does not improve the weak position of minority investors,and highly concentrated ownership structure is still prevalent in China’s listed companies and minority investors,such as Baoqian,Letv,Zang holdings and other enterprises have suffered serious losses due to the tunneling behavior of major shareholders.Although equity focus on solving the first kind of principal-agent problems,reduce the agency cost has certain significance.But some extent,it exacerbated the information asymmetry between large shareholders and minority shareholders,make major shareholders with control of the hollowed listed companies by means of underground,damage the interests of minority shareholders.In addition,the current domestic supervision mechanism is not sound,and the punishment of illegal behavior is low,which provides an opportunity for the expropriation of major shareholders.Visible,whether it is "a dominant" internal shareholding structure,or the lack of external supervision function are hollowed behavior have created favorable conditions for large shareholders,when it does not agree with that of minority shareholder interests,for example by currying favour for his major shareholders to control,encroach on minority shareholders rights and interests,which affect the overall value of listed companies.Qianshan pharmaceutical machinery’s business risks have been hidden for a long time.In the first half of 2018,it was investigated twice by China securities regulatory commission for violation of information disclosure.In addition,the company’s annual report in 2017 was issued by Ruihua Certified Public Accountants,which could not express its opinions.Though the case study method,this paper takes the representative and time-effective Qianshan pharmaceutical machinery as the research objects,and makes a detailed analysis of the event that its actual controller,Liu Xia hua hollowed out the listed company by means of his own control right.In this case,the highly concentrated o wnership structure,the absence of independent directors,the lack of participation consciousness of minority shareholders,the separation of the two rights under the pledge of shares,and the imperfect external supervision mechanism are the important reasons for the major shareholders to realize the expropriation of interests.When carrying out the tunneling,major shareholders seize the company’s assets by means of purchasing related party assets at a high premium,related party occupying non-operational funds,illegal guarantee and large private loans.As a result,the operating condition of Qianshan medicine machine deteriorates,the excess return rate drops sharply,the efficiency of resource allocation decreases and other adverse economic effects.In view of the tunneling behavior of major shareholders and the reasons,this paper puts forward suggestions from the aspects of equity structure,corporate governance and external supervision level.Based on the analysis of this case,this paper recognizes that the means of major shareholders to carry out benefit expropriation are generally more secretive and diverse,listed companies to optimize the equity structure,implement strict screening of management personnel,give play to the supervisory function of the board of directors,improve the structure of the shareholders’ meeting and so on,is the key to effectively restrain the tunneling behavior of major shareholders.Moreover,as a part of the external regulatory agencies,external audit institutions should maintain their independence and enhance their awareness of risk prevention.The external regulatory authorities should also strengthen the information disclosure system,improve the legal system of relevant parties,increase the punishment for violations of laws and regulations,give full play to the regulatory role of the media,and truly safeguard the interests of minority shareholders.