Controlling Shareholders, Related Transactions, Transfer Of Benefits

At present, main corporate governance issues in most countries are reflected in the conflicts of interest between controlling shareholders and minority shareholders. Compared with quite early studies, both theoretically and empirically, of transfer of benefits by controlling shareholders overseas, research of those in our country is still in its infancy. As mainly developing from the system reorganization of state-owned enterprises, our listed companies share close connections with their former parent companies, and those related transactions are often for the purpose of transfer of benefits realization of controlling shareholders.An emerging market nation as China is, constructed with inadequate legal system in certain aspects, minority shareholders’ interests are not effectively protected. Furthermore, given the special national conditions of China, listed companies have highly concentrated ownership structure, and state-owned enterprises are massively in existence, and some controlling shareholders substantially control companies, which create more favorable conditions for controlling shareholders’ private interests. Thus, controlling shareholders can carry on related transactions and drain company’s resources.According to the"12th five-year" Development Program, chemical fertilizer industry in China should put its main efforts in the realization of product concentration improvement, product structure optimization, technical progress, and speeding up acquisition and reorganization. Now the chemical fertilizer enterprises still enjoy some preferential policies, which include preferential price and VAT exemption of natural gas, electricity and railway transportation. But along with continuous improvement of the price formation mechanism, preferential policies will be gradually canceled, bringing chemical fertilizer enterprises new opportunities and challenges. In2012, the No.l document of the national central government pointed out:" actively promote technologies like precision seeding, deep plowing, and conservation tillage." Set in this background, this paper chooses Sichuan Chemical Industry Holding Co.,LTD. and its branch listed companies, LuTianHua and*ST ChuanHua for case study, which has certain practical significance.This paper mainly studies the relations among controlling shareholders, related transactions and transfer of benefits. During the period of2011-2012, Sichuan Chemical Industry Holding Co.,LTD., as the controlling shareholder, transfers interests between its branch listed companies LuTianHua and*ST ChuanHua or to other subsidiary and joint-stock companies through related transactions of various forms, which has seriously damaged the interests of small and medium-sized investors and tempered their enthusiasm.The main part of this paper is as follows.The first part mainly discusses the research background, significance and methods of this study, and further puts forward some expected contributions and possible shortcomings.The second part primarily presents and reviews the current related literature review both home and abord, of which include reasons for interests transfer and its various kinds.The third part is about definition of key concepts and the theoretical basis. Related concepts defined include controlling shareholders, related transactions and transfer of benefits; and the theories based on are Information Asymmetry Theory, Principal-agent Theory and the Theory of Investor Protection.The fourth part introduces the related transactions in Sichuan Chemical Industry Holding Co.,LTD., analyzes and also evaluates its causes and economic consequences.The fifth part, after theoretical analysis and case study, comes to the conclusion and then some suggestions on restraining controlling shareholders from transferring interests by related transactions are finally put forward.Compared with current studies which analyze transfer of benefits through empirical research, this paper makes efforts to analyze the specific case study of Sichuan Chemical Industry Holding Co.,LTD. and its brach companies LuTianHua and*ST ChuanHua, which makes easier understanding in the reasons and its economic consequences in transfer of benefits by related transactions, and serves as a further complement to the empirical studies as well. But attention should be paid that these public financial data in this case study might not authentically reflect its transfer of benefits in practice.