A Case Study Of The Reduction Behavior Of The Controlling Shareholders Of China Growth Enterprise Market

The Growth Enterprise Market of China came into being on September23th,2009. From October2012, especially from2013a huge amount of theunlock of the IPO restricted shares will happen, making the market value ofthe unlocked GEM restricted shares in2013jumped to263.703billion RMB,which is more than the sum of the previous three years. Reading from theReduction bulletins in the first half year of2013, the market value of GEMrestricted shares reduced is as much as15.363billion RMB, accounting forabout16.50%of unlocked ones in the same period while in2012this figurewas13.57%. August and September in2013witnessed the biggest amount ofunlock in the GEM. Shareholders of these stocks have a restricted period of36months and they are generally the controlling holders or the actualcontroller of the companies who not only own large amounts of unlockedshares, but also have a strong ability to influence the company’s informationdisclosure and decision-making. So the reduction of these shareholders willhave greater impacts on the company stock and the market as well as theinterests of minority shareholders.This paper studies the90reduction events of the controllingshareholders occurred during from October31,2012to October31,2013(mainly concentrated in2013). Theoretical analysis, statistical analysisas well as case analysis and other methods are used to study the overall behavior of the controlling shareholder of30companies or explore one byone. The study coves the following aspects: good or bad news released beforethe reduction, the share price features when the reduction is performed andthe price trends before and after the reduction, the market reaction to thereduction, earning management before the reduction.The following conclusions are reached regarding the30companies: thereduction proportion of the natural person shareholders exceeds theinstitutional stockholders; GEM controlling shareholders tend to perform thereduction in a short time after the unlock; maximum GEM controllingshareholder holdings reduction occurred in May; companies tend to disclosegood news in a month before the reduction and bad news after the reductionand this is more applicable to natural person shareholders; there are notnegative reactions as concluded by previous studies when the unlockhappened or reduction bulletins are disclosed, but there are negative reactionsthe moment after the reduction; some companies use sales expenses,management expenses and non-operating income to do earnings managementbefore reduction.The case study of SUNWIN INTELLIGENT CO. LTD shows that itused ways of disclosing the whitewashed annual report in advance rightlybefore the reduction, the profit distribution plan including high bonusdividend and earnings management in the quarter before the deduction to liftthe share price and successfully perform the reduction at a high price.