Analysis Of The Practice And Economic Consequences Of Shareholding And Exercise Of Rights By Investment Service Center

In China’s capital market,most investors are in fact retail investors,and the quality of their investments in listed companies varies,and the relevant laws and regulations are not complete.Most small and medium investors often have no channel to defend their rights when their legitimate rights and interests are damaged,or they give up defending their rights due to high costs.In order to better protect the interests of small and medium-sized investors,the CSI Small and Medium-sized Investor Service Centre(the Centre)was registered in Shanghai in2014.It is a securities and financial public interest institution approved and directly managed by the CSRC,and therefore has the nature of flexible government supervision.The status of the Centre has been significantly enhanced since the enactment of the new Securities Law,and this innovative regulation is considered to be a "semi-public-semi-private" implementation mechanism with Chinese characteristics.Theoretically,the choice by the CIC to exercise its rights could cause concern among investors,leading to a sell-off of the company’s shares,which could result in a fall in the share price.Such a negative reaction could not only damage the company’s reputation,but also adversely affect the company’s operations.The exercise of rights by the CIC may also lead to the risk of litigation and compensation for the company,further damaging the company’s reputation and image.On the other hand,the governance effect of its exercise may be questionable,as the market may perceive it as a "paper tiger" and not react to it.The selection of cases focuses on this contradiction,and Shandong Jintai(600385)has been chosen as the case study for this article.Shandong Jintai held its 2016 annual general meeting in June 2017,at which the Investment Service Centre attended on behalf of the small and medium-sized shareholders and questioned the company on the spot,while putting forward constructive comments on corporate governance and other aspects.However,the Investment Service Centre was disappointed that Shandong Jintai not only did not pay attention to this,but instead saw it as influencing the holding of the AGM.on29 June,Shandong Jintai changed its attitude and issued an apology statement.In the statement,they admitted that their attitude towards the exercise of rights by the Investment Service Centre at the AGM was inappropriate and said they would welcome continued attention and valuable suggestions.This article uses a single case study approach to sort out the process of the disregarded exercise of Shandong Jintai’s shareholding rights by the Investment Service Centre.Combined with the event study method,it analyses the selection of the subject matter of the exercise of rights by the Investment Service Centre,the reasons for the disparagement of the exercise of rights,and the effect of the exercise of rights from the exercise practice of the Investment Service Centre.In terms of the selection of exercise targets for investment service centers,this article combines the financial characteristics,corporate governance characteristics,and external supervision of Shandong Jintai to discover the reasons why Shandong Jintai will become the exercise targets for investment service centers.The obstruction of the exercise of rights by the investment service center reflects that the company does not attach enough importance to the rights of small and medium-sized investors,and it is highly likely that the company has its own problems and has a lucky mentality,as well as insufficient understanding of the investment service center.Through the event study,four key time windows were selected to analyze the reasons for the company’s attitude change and active apology,and the initial exercise mechanism of the investment service center.In terms of exercise effect,Shandong Jintai apologized and promptly revised the Company’s Articles of Association,reducing the restrictions on small and medium-sized investors’ participation in corporate governance.This exercise has to some extent restricted the tunneling behavior of major shareholders,and in the future,shareholders actively made a commitment not to reduce their holdings considering the interests of small and medium-sized shareholders.The exercise of power by the Investment Service Center has also triggered disciplinary follow-up by regulatory agencies and negative media coverage.Two years later,the investment service center spoke out about the major asset restructuring project of Shandong Jintai.After the investment service center issued a document,Shandong Jintai actively followed and provided feedback,and finally terminated the restructuring transaction considering the interests of small and medium-sized shareholders.