Research On The Motivation And Economic Consequences Of Shareholding Reduction By Executives Of Jincheng Pharmaceutical

Since 2006,influenced by the revision of China’s Company Law and the reform of the share split,the original shares held by executives can be circulated in the secondary market.Subsequently,the reduction of shareholdings by executives has mushroomed and the number of companies in which executives have implemented shareholding reductions has increased.The reduction of holdings by executives conveys negative sentiment to the market,infringes on the interests of minority investors,and eventually backfires on the companies themselves.Although the new regulations on executive shareholding reductions issued in 2017 have a certain inhibiting effect,executive shareholding reductions are still very common.Therefore,the shareholding reduction behavior of executives has also received increasing attention.Based on the above background,this paper selects Jincheng Pharmaceutical as the research object based on information asymmetry theory,principal-agent theory and signaling theory to explore the motivation and economic consequences behind the shareholding reduction behaviors.This paper compares the events of the executive shareholding reduction in 2020,reveals the motives of the executive shareholding reduction of Jincheng Pharmaceuticals,and on this basis,discusses the behaviors adopted by the executives to achieve the reduction and the process of the reduction.Then,we analyze the impact of the executives’ shareholding reduction behaviors on minority investors,the company itself and the market reactions.Finally,the implications of this case study for internal and external regulation,as well as for investors themselves,are discussed.The conclusions drawn in this paper are as follows: First,executives,as information-advantaged insiders,reduce their holdings to obtain excess returns and to avoid the risk of share price declines when the company’s own operating performance is poor and the share price is overvalued by the market.Second,in order to cooperate with the shareholding reduction,executives use their control advantage to make strategic information disclosure and release conceptual themes to the outside world to boost the share price.At the same time,executives stabilize the company’s performance through surplus management in order to achieve a precise timing of the share price reduction at high levels.Third,the shareholding reduction behavior of executives can harm the interests of minority investors;lead to the reduction of corporate value as well as the departure of some executives after reducing their holdings and the change of the executive team;and bring negative market reactions.Therefore,in order to further regulate executives’ holding reduction behavior,this paper concludes three insights: an incentive system suitable for the long-term development of the company should be explored;a market-oriented environment with multi-party supervision should be formed;and investors should raise their awareness of investment risks.