An Empirical Study On The Influence Of Major Shareholders’ Stake-raising On The Corporate Investment Efficiency And Operating Performance

Since major shareholders and top managers of listed companies have increased their share holdings over nine thousand times in the secondary market from September2008to the end of2013, it is becoming increasingly important to research on stake-raising. Major shareholders’ stake-raising in the secondary market is a special insider trading activity emerging after the split share structure reform. Unlike the existing literature and research, this article focuses on the behavior itself, exploring its impacts on companies’ investment efficiency and business performance (economic consequences).Major shareholders’ stake-raising is a behavior of major shareholders continuing to purchase stocks in the secondary market. During the period of stock market turbulence, purchasing stakes has prominent announcement effect in the market, brings about change to stock price, and affects the external investors’ expectations about the company’s future performance. Besides, big shareholders increasing stakes can change the internal governance mechanism. Major shareholders are rational, so they will exploit their power to take part in corporate governance inevitably to maximize their own benefit. Therefore, the stake-raising behavior of major shareholders also has an influence on the enterprise’s internal governance effectiveness and operating performance. What effect on earth the stake-raising behavior brings to corporate governance? This paper respectively explores the impact of major stakeholders’ stake-raising on corporate investment efficiency and operating performance.Using listed companies2009.1.1-2013.12.31yearly data on Shanghai and Shenzhen Stock Exchange whose big shareholders holding more than5%have increased their own stake in the secondary market, this paper compares the investment efficiency of the year that stake-raising behavior happens and the previous year, finding that the investment efficiency has improved significantly from the year before. It means major shareholders will take part in the internal governance after increasing stakes, thus participating in investment decision, investing the project which can enhance the enterprise value, finally improving the inefficient situation such as the underinvestment or overinvestment etc. Then, we classify the total sample into two:the largest stockholder sample and non-largest stockholder sample, select ROA and Tobin Q as the measure of corporation business performance to verify whether the operating performance increased after stake-raising. The result shows that, the ROA of companies whose largest stockholder increases stock gets enhanced, but not significant, the Tobin Q decreases insignificantly; the operating performance of non-largest shareholders’ companies drops insignificantly too. Major stockholders will participate in the governance activities, improve the investment decision, eventually enhance the corporate value after stake-raising, but the effectiveness of non-top shareholders’ behavior will be offset by other complex governance factors.Considering the possible influence of the biggest shareholder’s ownership percentage to company’s performance, this paper sets ownership concentration and degree of restriction of the corporation the year before stake raising as the control variables, respectively regresses the business performance difference between the year at and after stake raising on the sum of raising proportion of the largest shareholders and non-largest stockholders in a fiscal year, exploring the direct relationship between major shareholders’ stake-raising behavior itself and enterprise’s operating performance. The result indicates that the more the biggest shareholder buys back his company’s stock, the better future performance will be, the more the non-biggest stockholders buys back his company’s stock, the worse operating performance will be, which is mainly consistent with the direct comparison of business performance. Major stockholders will participate in the governance activities, improve the investment decision, eventually enhance the corporate value after stake-raising, but the effectiveness of non-top shareholders’ behavior will be offset by other complex governance factors. In the regression model, we also include the dummy variable that represents the nature of ultimate controller, so as to research the different effectiveness of the top one’s overweighting behavior in the state-owned listed companies and those non-state-owned listed companies. We find that corporate performance of the year after the stake-raising year is significant better in state-owned listed companies than in the non-state-owned listed companies, however, the state-owned nature lowers the positive impact that stake raising proportion brings to the improvement of business performance. That is, the performance improvement of the state-owned companies is not due to the big quantity of stock bought back by the biggest stockholder. This suggests that the capable state owned shareholders respond positively to national policy, buying back stakes to enhance investor’s confidence in the stock market. The state-owned stockholders can participate in company’s decision-making to improve corporate business performance just taking advantage of the existing controlling force, do not have to buy stocks in a large number to strengthen the controlling power. The state-owned nature itself is a very strong signal.Through studying on major shareholders’stake-raising, this paper provides further revelation of the motivation and the effect of insiders’behaviors in the asymmetric information environment. We expect it will help outside investors recognize and understand the meaning of insider trading behaviors, and make rational investment strategies to strengthen their self-protection; it will also provide evidence for securities regulators to improve regulation of insider trading. The innovation of this article lies in studying the economic performance of the largest shareholders’stake-raising and the non-top shareholders’stake-raising behavior from the accounting dimension and value dimension, and attempts to explore the relation between investment and performance.