Research On Tunneling Of The Controlling Shareholders Of China’s Listed Companies Based On M&A Among Related Parties

It is important way for enterprises to develop by M&A. However, some negative effect still exists. For instance, controlling shareholders may implement M&A especially MARP (M&A among Related parties) to obtain private benefits, which both harm the SMR’s (small and medium shareholders) benefit and the healthy development of China’s capital market seriously. Therefore, according to different scholars’ research, it is very important to analyze MARP, and then provide academic support for governmental policy-making.The proposal of tunneling and propping led to numerous theoretical and empirical researches from scholars in the world. Researches mainly focus on three aspects. Firstly, the analysis of dynamic motivation for MARP, involved theory of MA approval and theory of MA suspicion. Secondly, what factors inspire or constrain controlling shareholders’ tunneling or propping? Thirdly, how to measure performance of MA or market reaction after MA?Although, thousands of documents have studied the problems which are mentioned above deeply, few of them can combine with the three issues simultaneously. On this basis, this paper is designed to discuss three issues together by using a large sample of listed companies in China2010.This paper is divided into six parts, including:Chapter I:Introduction. The proposal of problems researched, and then brief overview of this paper, including the background, purpose, and framework, methods, innovation and deficiency are given.Chapter II:Definition of key terms and literature review. Firstly, the definition of key terms including tunneling, propping, MARP and so on. Secondly, review of the M&A motivation, research status of tunneling and etc. Finally, the building of the model of M&A based on the existed documents especially LLSV model. Chapter III:It analyzes economic system background and main approaches to expropriate listed companies through MARP are clarified by case study. Economy in transition, full circulation of stock, IPO approval system, Split listed stocks, governmental intervention, imperfection of the regulatory system and initial multi-level capital market are main economic system background factors. Additionally, three representative cases are chosen to illustrate the common ways of tunneling, which are sale of listed company’s assets at low-price, purchasing of related party’s assets expensively, and direct benefits transformation by injection of low-quality assets to listed companies.Chapter Ⅳ:Based on the MARP samples of China’s listed companies in2010, this chapter analyzes short and long term performances of MARP samples, using event and accounting study methodology respectively. Both results prove that MARP are tunneling behavior as a whole among china’s listed companies.Chapter Ⅴ:It is the core part of the paper. Multiple regression method is used to research what factors influence controlling shareholders’ tunneling motivation through MARP. The empirical results show that three factors have significant impact. Firstly, the higher of shareholding ratio of controlling shareholders, the more possibilities tunneling through MARP would happen; Secondly, if actual controller is state-owned, the controlling shareholder shows stronger tunneling incentive; Thirdly, in order to get promotion, local government may intervene M&A. In quantitative analysis model, there are other seven factors, which influences are relatively limited.Chapter VI:Conclusion. The proposal of suggestion for solving controlling shareholder’s tunneling through MARP on the basics of analyzing dynamic motivation and relevant factors, and Limitation of this paper such as choice of sample year and substitution variables.The main contributions of this study:Firstly, the object researched is more definite based on national standard MARP; Secondly, enlarging corporate governance further by studying large shareholder’s tunneling in the view of internal and external administration structures at the same time and examining mutual effect mechanism about how the inside and outside factors affect motivation of major stockholder;Thirdly, providing the significant reference for corporate governance in transformational countries; Fourthly, improvement of listed companies’ MARP performance and protection of small and medium investors’ benefits.