Study On The Financial Regulation For Share Repurchases By Listed Companies

China’s share repurchases have gone through a process of strict prohibition to gradual relaxation until 2018 when the National People’s Congress deleted the restriction on "after-tax profits" for share repurchases under Article 142 of the Company Law for "employee shareholding plans or equity incentives",since then there is a gap in the financial regulation for share repurchases by listed companies,causing the development of share repurchases to stagnate,reducing the value of the repurchase signals,and weakening the protection of creditors and shareholders.As for the reasons,the substance of share repurchases as a distribution of the company’s property without consideration is not recognized in the company law system.Creditors are in a difficult position due to the lack of restrictive funding in leveraged repurchases.The nature of the end treasury shares is unrecognized,the relevant regulatory framework is missing,resulting in a regulatory gap for the repurchased shares.In addition,the failure for intermediaries to play the role of "gatekeeper" has led to the abuse of the freedom of invitation to offer,resulting in a rampant flimsy repurchase.Above these make it imperative to establish reasonable financial restrictions for share repurchases.By its very nature and experiment in judicial practices,the old standard of a single "profit after tax" is not the best restriction for distributable profit.On the premise that the solvency test has been free from traditional accounting policies and has become an important tool for judges to prove damage in the causality argument in China’s judicial practice,it is suggested that the solvency test should be introduced as a benchmark throughout all the repurchase period to define whether the listed company has the ability to continue operating and solvency and to measure whether the listed company can use their own funds or even self-financing to repurchase their own shares,on the basis of allowing surplus reserves and undistributed profits as own funds,supplemented by self-financing as the source of funds for share repurchases.Besides,the relevant supporting system should adhere to director-centrism,distinguish share repurchases from securities law violations,and establish a treasury stock system to protect the interests of company and investors;in terms of protecting the interests of shareholders,a buyback review pre-procedure and a related shareholder recusal voting system should be set up for selective repurchases and lazy repurchases.