On Controlling Shareholders' Expropriation And Countermeasures

With the gradual development of China's capital market,more and more enterprises have entered the securities field and played a guiding role in the development of the national economy.However,in recent years,tunneling by controlling shareholders and encroaching on the interests of minority shareholders have occurred frequently.As an emerging and transitional capital market country,the phenomenon of highly centralized ownership structure and absolute control of the operation of a company by a certain shareholder is widespread in China.Although the concentration of equity can alleviate the conflict between shareholders and managers to a certain extent,and reduce the agency cost,due to the information asymmetry between the controlling shareholder and the external investor,and some shareholders who absolute control over the operation of the company management often appoint the managers,and there is imperfect regulation in this respect in China,where the illegal cost is low,all of these factors give the controlling shareholder chances to loot resources from the minority shareholders.If the controlling shareholder's transfer of corporate resources is more beneficial than the benefits of relying solely on ownership,they have the motivation to take some specific ways to transfer the company resources to themselves through the control right held by them,so as to seize the private excess benefits.This kind of behavior will cause loss of profits for minority investors,and will also greatly reduce the value of listed companies.*ST Bao Qianli's(Jiangsu Protruly Vision Technology Group Co.,Ltd.)crisis began in 2017 with the resignation of former chairman and controlling shareholder Zhuang Min,followed by the tunneling of the company and the embezzlement of the interests of minority shareholders exposed.After the resumption of trading,Bao Qianli fell by the limit for 30 times in a row,setting a record for the decline of a-shares,with a cumulative decline of about 80%.This paper adopts the research method of case analysis,selects *ST Baoqianli as the research object,and conducts a specific study on the cases in which Zhuang Min,the former chairman of the company,uses the absolute holding position to encroach on interests through various ways.In this case,the imbalance of ownership structure,lack of effective internal control,and insufficient legal constraints are the motives and incentives for controlling shareholders to encroach on interests.In the event of tunneling behavior,controlling shareholders used a variety of ways,such as listing fraud,modify company regulations,excessive foreign investment,and party transactions,to encroach on interests,which ultimately led to serious economic consequences such as a sharp fall in the company's stock price,increased risk of various types,and the stagnation of small and medium-sized shareholders.In view of the motives and ways of the controlling shareholder's interest encroachment behavior,this paper proposes countermeasures and suggestions from three aspects: corporate governance,minority shareholders and external supervision.Through the study of this case,this paper finds that the ways of controlling shareholders' interest encroachment are often hidden and diversified.The system of equity balance and perfect internal supervision system is very important for corporate governance and is the key to curb controlling shareholders' interest encroachment.For small and medium-sized investors,while paying attention to the stock price and profits of listed companies,they should also continue to pay attention to the temporary announcements and decisions issued by listed companies,actively participate in the management decisions of listed companies,and discover risks as soon as possible to avoid being caught.When interests are infringed upon,we should safeguard our own rights and interests through legal means.In addition,external regulatory bodies should also improve laws and regulations,improve the compensation system and litigation system for small and medium-sized investors,increase the cost and supervision and inspection of violations,and reduce the risk of violation by controlling shareholders.The possible innovation of this paper mainly has the following two points.First,the existing literature mainly adopts the empirical approach,and most of it is only for research in the form of a certain way to encroach interest.This paper analyzes the various ways of encroaching in a specific case and helps to enrich the literature on the interests of controlling shareholders of listed companies in China.Second,at present,the research on the embezzlement of controlling shareholders' interests mainly focuses on state-owned enterprises,while there are few studies on the embezzlement of controlling shareholders' interests in the case of the concentration of shares and the dominance of one share in private listed companies.Taking Baoqianli company as an example,this paper proposes corresponding governance countermeasures from three aspects,which can supplement relevant theoretical research and improve relevant laws and regulations to a certain extent.