The Motivation And Economic Consequences Of Controlling Shareholder’s Escape

Equity division reform is a great creation in the process of the capital market in our country.The original intention was to obtain the non-negotiable shareholders’ circulation right by paying consideration to the current shareholders.The interests coordination between major shareholders and minority shareholders would reduce the large shareholder’s tunneling behavior.However,after lifting the ban on the sale of shares,the large amount and high frequency of the reduction from the restricted stock holder had also caused problems for the capital market.It was even thought to be one of the reasons for the stock market crash of 2008.In the wave of reduction,some controlling shareholders reduce their holding to the extent of giving up the control power or leading to a decentralization of equity.Theoretically,it is more difficult for companies with dispersed ownership or no actual controller to achieve results in corporate governance,which may even affect the sustainable and healthy development of the company,and also cause some adverse effects on the securities market.Therefore,it is urgent to regulate the reducing behavior of large shareholders.Meiyan Jixiang is the company with the lowest concentration of shareholding in the capital market through its controlling shareholder’s continuous reduction,which makes it to be the "pronoun" of the equity separation.Meanwhile,Meiyan Jixiang is also attracting market attention in terms of corporate governance and stock price performance.Its transformation into hydro power has had little impact.The corporate performance is poor,but the executives are paid millions per head.It has repeatedly relied on selling assets to turn around losses and take off"ST" hats.Its affiliated transactions are frequent but not publicly disclosed.The entry and exit of the national team and "Hengda" sent its stock price soaring and tumbling.Is there a causal relationship between these events and the escape of controlling shareholders?Therefore,this paper mainly studies the escape behavior of Meiyan Jixiang’s controlling shareholder.Firstly,the author summarizes and comments on the reasons,influencing factors and effects of the major shareholders’ reduction by reading the existing literature.Then,the author explains that Meiyan Jixiang’s controlling shareholder’s escape behavior from the comparison of control benefit and capital gains,in order to explore the motivation of the controlling shareholder to reduce the flight.Finally,to find the economic consequences of market performance,the company’s operating and financial performance after the controlling shareholder’s escape,the author mainly calculates the annual cumulative abnormal returns,the standard deviation of the monthly real rate of return,and also use trend analysis and factor analysis.Based on tunneling theory,this paper reinterprets the decision of controlling shareholders’reduction depends on the game of control benefit and capital gains.The more serious the tunneling is in the early stage,and the future return on control is even less than the return on reduction of holding,the controlling shareholder may give up control and choose to reduce holding and flee.This enriches the study of major shareholders reducing behavior.What’s more,it is of great significance for regulatory authorities to regulate the reduction of behavior,and small and medium investors to do value investment.In this paper,the research found that control benefit less than capital gains is the most important reason for Meiyan Jixiang controlling shareholder’s escape.There are three motivations in the case,the debt repayment pressure is forcing it to reduce its holdings and pay off the debt.And the security of shareholding reduces resistance and concerns.The most important thing is that before the reform,the controlling shareholder severely hollowed out,leading to its performance decline and even loss.Under the concern of reducing control benefit and increasing risk of tunneling,the controlling shareholder finally abandons the control right and chooses to realize the legal and deterministic benefit of reducing the holding.Then,through the study of economic consequences,it is found that when the controlling shareholder reduces to flight,it will lead to the diversification of the company’s equity.On the one hand,the company’s stock price volatility increased because of the restructuring expectations and speculation;On the other hand,it is easy to lead to the phenomenon of insider control.And the manager is reluctant to make long-term project investment based on the threat that the lack of long-term incentive and control power may change the owner at any time,which will eventually result to poor performance of the company.Suggestions are made in this paper:For the supervision department,it can increase the punishment and perfect the legislation to punish the tunneling behavior,or restrain the frequency and range of the reduction of holding,so as to avoid the bad consequences caused by the reduction of holding by controlling shareholders.For small and medium-sized investors,it is necessary to correctly identify the purpose and motivation of controlling shareholders to reduce their holdings,and avoid buying or selling the stock of the company that controlling shareholders fled due to hollowing out.