Study On Big Shareholders’ Tunneling

Berle and Means put forward the Principal-agent theory in1932, they studied the agency conflict between managers and shareholders in enterprises with dispersed ownership. With economic development, the shareholding structure is not dispersed, but concentrated in many enterprises. The listed companies exist shareholders that can affect the daily management and operational decision making. Big shareholders have the advantage for taking charge of the listed companies and knowing the operation in enterprises. They tunnel the listed company through a variety of subtle ways, transfer the benefits for themselves. The agency conflict between big shareholders and small shareholders has becoming increasingly fierce. After the share reform, China’s capital market began a widespread and profound change. A series of regulatory measures have carried out, involving insider trading, capital raising, information disclosure, affiliate transaction. These laws and regulations improve the quality of listed companies, enhancing the competitiveness of listed companies. Introducing the independent director, improving the internal control system, establishing the Audit Committee in the Board and other measures for developing China’s capital market have played a positive role. These regulatory measures improve corporate governance, standardize operation of listed companies, protect the interests of small shareholders, maintain the stability of China’s capital market, and increase the quality of China’s listed companies. However, because of the lack of regulatory measures of punishment and many other issues that exist within the listed companies, tunneling in listed companies is still serious. Big shareholders try to bypass the regulatory authorities, using privy means to tunnel listed companies. They hide associates relationship, so small shareholders have no knowledge of affiliate transaction of listed companies, thus making wrong decisions to related economic activities and bearing the loss losses. It is necessary to conduct further research on tunneling by big shareholder.In2009, the fact that Hualun Group tunneled Sichuan Golden Summit CO., LTD. through affiliate transaction, taking up the capital was reveal to the public. At the same time, Sichuan Golden Summit CO., LTD was involved debt crisis of Hualun Group because of a series of undisclosed associated guarantees, causing serious losses of small shareholders. Through case study of that Hualun Group tunneled Sichuan Golden Summit CO., LTD., we find internal and external reasons why tunneling can happen. The reasons are the separation of control and cash flow rights, the need for development by big shareholders, the ownership structure, the defect of corporate governance and regulation. We also analysis the ways Hualun Group tunneled Sichuan Golden Summit CO., LTD., which is affiliate transaction, taking up the capital, dividend policy, reducing stock by big shareholders. These cause bad economic consequences, which lead to serious loss of listed companies, the harm to small shareholders and the development of capital market. We evaluate the monitored mode and control measures from legal supervision and media supervision, using the benefit expropriation model to explain the reason why tunneling is almost out of control, namely the punishment is mild. We find the media can play a role to supervise. We put forward revelation based on case study, that regulators should improve and perfect the information disclosure, increase the intensity of punishment, enterprises should optimize the structure of corporate governance, news media should be encouraged to play a supervision responsibility, and we should improve the supervisory mechanism to protect the interests of small shareholders.