A Study On Market Timing Of Major Shareholders’Stake-raising In Listed Companies And Its Influence Factors

Major shareholders’stake-raising is an behaviour of major shareholders continuing to purchase stocks in the secondary market and an insiders’action emerging after the share reform.In the era of the split share structure, major shareholders that the state-owned shares or corporate shares represent can’t list on the market, and there is no major shareholders’stake-raising.However,the arrival of China’s Entire Circulation Times makes non-tradable shares major shareholders owned turn to traded shares, the stock value and the interest of majority shareholders are more closely connected. Major shareholders have to care about the stock price; According to the market timing theory, when a stock is undervalued, the listed company will repurchase stock.On the developed stock markets, that the listed company is a prevailing phenomenon.But there are fewer companies repurchased stock which is undervalued because of strict legal regime and low capital liquidity at home. So, major shareholders whose interests are closely related to stock try to boost stock price by stake-raising.The CSRC revamped regulations about stake-raising on8/27,2008in Administrative Methods of Listed Companies’Purchase,and the next day the Shanghai and Shenzhen exchange publishes Guides Concerning to Listed Companies’stockholder and the concerted action person respectively, which encourage and regulate major shareholders’stake-raising.Some scholars also start to study major shareholders’stake-raising which is under the Chinese special system background.the study is concentrated on the motivation and market reaction for major shareholders’stake-raising. Basing on previous studies, the paper has studied the market timing ability of the major shareholders when they increased their holdings, and tried to answer the following questions:Whether the major shareholders have timed when raising stake? Which factors could influence the market timing ability of the major shareholders?Using listed companies2008.8.27-2012.12.31monthly data on Shanghai and Shenzhen Stock Exchange whose big shareholders holding more than5%have increased their own stake through the call auction system, this paper finds that the major shareholders have generally performed a market timing when overweight, though the study of three aspects:the time, the proportion and the price of stake-raising. It mainly displays in:(Ⅰ) Firstly, when the big shareholders raise stake is when stock is undervalued. During the two months before stake-raising, the stock price shows the trend of falling down, however the stock price increases during the two months before stake-raising. Similarly, the first quarterly operating profit after stake-raising is greater than that of the last quarter before stake-raising;(Ⅱ) Secondly,when the company has larger recent share price volatility and better future growth better, major shareholders tend to hold more shares;(Ⅲ) Lastly, the price of big shareholders raising stake is also significantly less than the market average price.Basing on the main results, the paper has done further research of factors which may affect the major shareholders’ ability of market timing. This article’s studies have shown that the major shareholders’ ability of market timing is affected by the major shareholders’ nature and raising proportion, the company’s recent stock movements and future growth. Specific performance in:(Ⅰ)Non-state-owned major shareholders have better market timing ability than state-owned ones;(Ⅱ) With higher raising proportion, the non-state-owned major shareholders’ ability on market timing is better, but the state-owned large shareholders’ market timing ability will not increase along with the increase of raising proportion;(Ⅲ) Company recent downturn of the stock market will have a negative impact on major shareholders’ timing ability, and big shareholders are more concerned with stock price during two months before and one month after raising;(Ⅳ) For companies which have good growth in future, large shareholders will focus more on timing.The theoretical significance of the paper is to study the major shareholders’ stake-raising from the perspective of market timing.After proving the existence of market timing while the major shareholders’ stake-raising, the paper has also done a research about factors which may affect the major shareholders’ ability of market timing; The practical significance of this paper is to be in favor of outside investors to know about major shareholders’ stake-raising and be rational, which will boost investor confidence and promote the healthy economic development of the companies and the stock market.The innovation of this article lies to study the major shareholders’stake-raising though the study of three aspects:the time, the proportion and the price of stake-raising; the paper also makes a thorough research to the influence than the major shareholders’nature and raising proportion, the company’s recent stock movements and future growth on the major shareholders’ ability of market timing.