Research On The Prevention Of "emptying"by Major Shareholders Of Small And Medium-sized Commercial Banks Based On Internal Control

In order to optimise and improve the system of financial institutions and to improve the situation of inadequate and uneven financial services,the development of small and mediumsized commercial banks and the increase in the main body of financial supply began to be vigorously pursued,and an important measure taken was to encourage private capital to enter the banking sector and to carry out reforms to diversify the main body of property rights.In2015,private capital has formed a dominant advantage in the shareholding structure of small and medium-sized commercial banks.However,at the same time,the entry of private capital into the banking sector also brings the risk of connected transactions as well as transfer of interests.The ultimate goal of private capital is still profit-seeking,and the "hollowing out" of bank resources at the expense of other small and medium-sized shareholders has had serious economic consequences.In addition,the requirements for internal controls in China have become increasingly stringent,especially after the implementation of the shareholding reform,and the country’s regulators have enacted a number of laws and regulations to protect small and medium-sized investors.However,there are still many challenges in taking proactive measures to prevent,detect and effectively deter short-selling by major shareholders.The CSRC has also clearly pointed out that poor internal governance,ineffective internal controls and lack of effective control by major shareholders are the root causes of the occurrence of short-selling by major shareholders.At the same time,existing research suggests that internal control mechanisms can constrain the short-selling behaviour of large shareholders and key controllers.The fact that internal control has a corrective role and is able to play its timely role in the process of correction can effectively deter shortselling by major shareholders,which points us to a whole new direction of development.Therefore,can internal controls in financial companies act as a disincentive for large shareholders? What can be done to curb and prevent short-selling by major shareholders?This is the question we need to explore.It is against this background that this paper takes a fresh look at the bankruptcy of Baoshang Bank from the perspective of internal control.Firstly,it introduces the development profile of Baoshang Bank and its shareholding structure,the internal control situation,analyses the specific means by which Baoshang Bank’s major shareholder emptied itself,and illustrates the serious economic consequences brought about by its major shareholder’s emptying.Then we analyse the mechanism of the effectiveness of internal control on the controlling shareholder’s emptying behaviour,and select all financial companies in Shanghai and Shenzhen A-shares in the period of 2013-2018 as a research sample to conduct an empirical analysis to investigate how the effectiveness of internal control affects the controlling shareholder’s emptying behaviour.The conclusion reached is that when other variables are controlled for,the effectiveness of internal control and the degree of controlling shareholders’ shelling out are significantly and negatively related.This means that the more likely it is that internal control failures will lead to short-selling by major shareholders.On the basis of the research hypothesis being verified,the impact of internal control failure on substantial shareholders’ shelling out behaviour of Baoshang Bank is then analysed from an internal control perspective.Based on the above analysis,in view of the emptying behaviour of major shareholders,practical internal environment control solutions are proposed for other small and medium-sized commercial banks in China in terms of improving the bank’s governance mechanism,optimising the shareholding structure,optimising risk assessment methods,implementing differentiated information disclosure and enhancing internal and external supervision,as well as providing reference for small and medium-sized commercial banks to prevent the problem of emptying by major shareholders from the construction of internal control,and providing reference for optimising Practical and general suggestions are made for optimising the internal control of small and mediumsized commercial banks in China.The contribution of this thesis is mainly reflected in the following: firstly,the cases selected cover a more comprehensive range of issues.The Baoshang Bank major shareholder evasion case is a recent and influential case of misappropriation of bank interests by a major shareholder,and there are many problems in various aspects of the five elements of internal control,so it is somewhat typical.The second is the innovation of the research object.Previous studies on the problem of large shareholders’ emptying usually take listed companies as the object of empirical analysis,while this paper focuses on financial enterprises and subdivides the industry.In particular,the case subjects are small and medium-sized commercial banks,because on the one hand,banks are exposed to a greater variety of complex risks than other industries;on the other hand,as the requirements for the internal control of small and medium-sized commercial banks become higher and higher,it becomes particularly important to improve their internal control systems.