Research On The Problems Of Institutional Investors Expropriation

In 2016,the amount of convertible bonds financing was 107.3 billion in China's securities market,accounting for 43.76%of the total size of refinancing in that year.The issue of convertible bonds has become one of the important financing methods for listed companies in our country.And there is also a clear feature in the process of convertible bonds financing,institutional investors have played more and more important role in the financing of convertible bonds.The motivation for institutional investors to seek short-term gains is more pronounced.Studies show that the irrational behavior of institutional investors in encroaching upon the interests of listed companies by the manipulation of securities transactions occurs frequently,destroying the trading order in the securities market of our country and seriously damaging the rights and interests of our stakeholders.So how do institutional investors use convertible bonds to achieve the benefits of encroachment?This article will explore the paths of the expropriation that used by institutional investors through the case of convertible bond financing.Firstly,this paper makes the definition of encroachment,institutional investors and convertible bonds and puts up with principal-agent theory,private benefits of control theory and institutional investor's interest alliance hypothesis.And then,this paper introduces the basic situation of convertible bond issuers and investors,combing with the financial status and capital structure of GOME convertible bond financing,and puts forward the case analysis clues.Then,this paper analyzes the path of interests encroachment by Bain Capital and found that institutional investors colluded with the chairman to obtain the control of the company by setting the terms of convertible bonds and help the chairman keep the position in the company.After gaining the company's control,Bain Capital relinquished the strategy of expanding market and increasing its market share and recognition.Instead,it adopted a strategy of reducing the number of stores and stimulating its performance to rise rapidly in a short period of time and boosting its share price.At the same time,Bain Capital used its relationship with related parties such as JP Morgan to arrange special deals and transfer the benefits indirectly.Finally,the analysis and test of changes in financial performance,financial risks and shareholders' equity after Bain Capital withdrew from GOME found that Bain Capital's above-mentioned series of action caused the result of the encroachment on the interests of GOME:the decline in performance,the risk that creditors can not recover principal and interest increased,the value of the enterprise impaired,and the interests of the minority shareholders undermined.The study found that:?Collusion with manager is a prerequisite for institutional investors to encroach on the interests of the company.?The acquisition of the company's control,stimulating short-term performance improvement and manipulating stock prices are the main ways for the institutional investors to encroach.?Related parties of institutional investors are important tools of interest encroachment.According to the conclusion of the study,this paper puts forward some suggestions such as strengthening the standardized management of the terms of convertible bonds;strengthening the investigation of related parties of institutional investors;strengthening the participation of minority shareholders and creditors in the company's decision-making mechanism.