A Study On The Decreasing Behavior Of China 's Listed Companies

Listed companies in China usually have high concentration of ownership and the company’s operating activities and the largest shareholder are always in close contact. Those insiders who have a certain degree of control over corporate, always have motivation to trade on private information. From2006to2012, individual insiders are trading more and more unlocked shares through retail market. Besides, the market has already understood the motive behind those sales through block system and that where the institutional insiders trade most. Based on above reasons, this paper undertakes academic study of individual insider, studying the information amount of their selling tractions, factors affecting their transactions, effects of control rights on their tractions and economic consequences of their selling. The paper draws the following conclusions:First of all, this paper confirmed that individual insider has indeed mastered the internal information when they sell restricted shares:they earned significant abnormal return from the sale and the abnormal return decreased significantly after their transaction. Their reduction scale under the regulations restricting holdings of scale, the impatient degree and their identity do have a significant impact on the company’s future stock price and profitability.Second, market factors as well as the company’s fundamentals affect individual insider selling scale and the impatient degree. But the excess returns of the different types of investors are not the same:those have more ownership over the company usually sell their unlocked shares more impatiently, in a smaller amount and earned a smaller excess return, which shows that they do have the motive to earn excess return by selling, but also have the motive of liquidity and they are not willing to loss their control rights. Besides, the internal multiple identities indeed improved its possibility to obtain excess returns from selling their holdingsThird, we study the economic consequences of individual insider trading:from a market perspective, individual insider selling has a negative impact on the company’s future stock returns. The higher degree of impatient, the higher amount of selling under the regulation restriction, the more likely it is due to their negative information about company’s future development. From a personal point of view, selling may be considered for future tenure decisions:in general, the greater the degree of control over the company, the longer distance between individual insider selling and leaving, but when the proportion of shares they are selling increased, a subsequent leaving is implied since individual insiders may want to avoid leaving lock-up and are willing to give up a certain amount of control rights.In summary, individual insiders selling behavior is always affected by the following two factors:control rights and inside information. Their transactions are always the trade-off between these two reasons. On one hand, the insider identity let the individual more likely own inside information, thus earning excess return by selling shares. However, on the other hand, those who own the control rights of the company are not willing to abandon their rights and once they sell over a certain amount of shares, they are assumed to own negative inside information or are planning to leave.