Research On The Influence Of Non-tradable Share Reform On Chinese Security Market: Tunneling And Corporate Performance

Split share structure is a major institutional problem in China's securities market development. It undermines the consistent basis of the interests of listed companies and leads to the conflict of tradable shares shareholders and non-tradable shares shareholders. The completion of non-tradable share reform makes the interests of large and small converge. The interests of major shareholders return to the company's value-oriented theoretically. However, has the non-tradable share reform achieved the goal? The academic and practical concerns the matter. At present, the research on the effectiveness of non-tradable share reform is not enough and thorough. This paper concentrates on the impact of non-tradable share reform on tunneling and corporate performance. After reviewing the historical process of China's stock market and summarizing the relevant literature of tunneling, corporate performance and non-tradable share reform, we established the models of tunneling and corporate performance before and after non-tradable share reform and analyzed the key factors in tunneling and corporate performance. Using a combination of normative and empirical research methods, we test the impact of non-tradable share reform on tunneling and corporate performance from theory and experience. Finally, we give some suggestions on corporate governance of post-reform era.Based on LLSV(La Porta, Lopez-de-Silanes, Shleifer, Vishny) model, we established the tunneling and corporate performance models according to the actual situation of China's securities market and the features of controlling shareholder before and after non-tradable share reform. We find that the effect of share structure and governance structure on tunneling and corporate performance do not change in manner. That is, the greater the cash flow right, the smaller the tunneling, the greater the firm performance; the larger the control right, the larger the tunneling, the worse the firm performance; the larger the separation of ownership right and control right, the larger the tunneling, the better the firm performance; the better the corporate governance, the less the tunneling, the better the firm performance. Although there is no difference in manner, but strengthen to some extent. After non-tradable share reform, the impact of cash flow rights and corporate governance on tunneling and corporate performance are positively enhanced; the effectiveness of control right and separation of control right and ownership right on tunneling and corporate performance are inversely enhanced. For the same cash flow right, control right, separation of control right and ownership right and corporate governance, tunneling reduced and corporate performance improved after non-tradable share reform. Through model analysis, we believe that non-tradable share reform can reduce tunneling and increase corporate performance. The construction of model of tunneling and corporate performance before and after non-tradable share reform laid a good theory foundation for research on the effect of non-tradable share reform on tunneling and corporate performance.We use dividend variable to confirm tunneling, and then test the effect of non-tradable share reform on tunneling. Using 2003-2008 data of listed companies, we confirm tunneling of dividends. In China, large shareholder plunder the wealth of companies by superior control right, regardless of the development of listed companies and investment opportunities. Especially, the second-largest shareholder is the accomplice of the largest shareholder, assisting in expropriation of minority shareholders of the largest shareholder. If the shares nature of the largest shareholder and the second-largest shareholder are the same, they are destined consistency in their behavior. They will support cash dividends against the stock dividend, because cash dividend is in its favor. Cash dividend yield is many times higher than the minority shareholders', an expropriation of minority shareholder. The attribute of stock dividend is the same as its original's. Circulation right remains restricted. The stock dividend is naturally rejected by large shareholders. Government, as the actual controller of most listed companies, were in urgent need of funds for economic development, so they hope cash dividends from listed companies. They play an important role in fueling tunneling. The completion of non-tradable share reform changes the equity nature of large shareholders, which makes them from non-tradable share to tradable share and limited share. This reform is revolutionary, which changed corporate governance structure and make the interests of large and small shareholders converge. So the interests of large shareholders return to company. Non-tradable share reform reduces tunneling. According to sub-sample regression results, non-tradable share reform works differently, which influences national share sample, low equity balance sample and commercial sample more.Selecting the income from principal operations return on assets to evaluate corporate performance, we do a comprehensive test of the effect of non-tradable share reform and large shareholders'behavior on corporate performance. We find that corporate performance increase after non-tradable share reform, when the nature of control right are state-owned shares and legal person shares. Low separation of ownership and control right sample increases firm performance after non-tradable share reform. The public utilities and industrial samples improve corporate performance after non-tradable share reform. Through regression analysis, we find that non-tradable share reform increase corporate performance, whether in the whole sample regression or in the sub-samples. Non-tradable share reform influences national sample, low separation of ownership and control right sample and industrial sample more. The reason why non-tradable share reform increases corporate performance is that it improve the corporate governance efficiency. The impact of large shareholders'behavior on listed companies is positive. Convergence-of-interests effect plays a major role. When we put large shareholders variable and non-tradable share reform variable cross, we find that for the same control right, ownership right, separation of ownership and control right, the first shareholder, the second shareholder, the difference between the first shareholder and the second shareholder, corporate performance increases after non-tradable share reform. Only when the nature of control right is country or the separation of ownership and control right is low, corporate performance reduces after non-tradable share reform for the same the second shareholder.Now, our study can find that non-tradable share reform improves corporate governance efficiency, and that make the interests of large and small shareholders converge, and that let large shareholders company's value oriented. After non-tradable share reform, tunneling reduces, and corporate performance increases.Now, our study found that at least the following: split share reform to improve the efficiency of corporate governance, so that the interests of small shareholders in line, the interests of major shareholders in the company's value orientation of their return. After the share reform, large shareholders reduce the transmission behavior, corporate performance increases, while the share reform variable and the variable cross-largest shareholder, the shareholder for the same variables, better company performance after the share reform. When we put large shareholders variables and non-tradable share reform variable cross, for the same large shareholders variables, corporate performance is better after non-tradable share reform.In this dissertation, the innovations are: (1) we construct tunneling and corporate performance model according to Chinese actual situation. LLSV model is a general model for tunneling and corporate performance. In view of the actual situation of the stock market, we establish tunneling and corporate performance model before and after non-tradable share reform and compare them. We find that the effect of share structure and governance structure on tunneling and corporate performance do not change in manner, but strengthen to some extent. That is, this paper confirms the effect of tunneling and corporate performance in theory first. (2) We first use a large sample to test the influence of non-tradable share reform on tunneling. To measure tunneling is difficult in corporate finance. If we use fund occupation and related party transactions to measure tunneling, we cannot distinguish normal transactions from tunneling. From 2006, the state begins to formulate fund occupation and related party transactions. We use UFIDA's case and empirical method to confirm dividend tunneling, and to test the effect of non-tradable share reform on tunneling. In the same time, the distribution of dividend is not for a single purpose, so we control free cash flow hypothesis, outcome model, substitute model and dividend life cycle. In order to examine the effect of non-tradable share reform on tunneling in depth, this article does sub-sample research from control right nature, equity balance and industry. We also verify the real reason why the non-tradable share reform can reduce tunneling. Therefore, this article on the research of the effect of non-tradable share reform on tunneling is thorough and innovative. (3) This paper first utilizes a large sample to test the effect of non-tradable share reform on corporate performance. Past scholars'researches have several questions. First, the test method is too simple, just comparing two years or two quarters before and after non-tradable share reform. Second, the empirical sample is too short to verify the research problem. Their researches are too general and not detailed enough. In response to these problems, this study includes all the listed companies. We test the effect of non-tradable share reform on corporate performance through comparative analysis, regression analysis and sub-samples regression analysis. We also study the effect of the control structure of the pyramid on corporate performance. We put large shareholders variable and non-tradable share reform variable cross to examine the effect of non-tradable share reform on large shareholders and corporate performance.