Research On The Tunneling Behavior Of Major Shareholders In Related Party Transactions

With the development of corporate governance mechanism,there are two kinds of conflicts in the principal-agent problem: one is the conflict of interests between owners and management;the other is the conflict between majority shareholders and minority shareholders.Among them,traditional corporate governance literature has extensively studied the first kind,while modern corporate governance research pays more attention to the other one.In China,the special institutional background led to the partial concentration of ownership,and the phenomenon of dominant shareholder generally exists in the capital market.This ownership structure has its advantages that it helps to keep agency costs down between the owner and the management,while it also has disadvantages that the majority shareholders have the ability to use their controlling position to tunnel the listed company for their own interests.The ability of majority shareholders to use their controlling position to tunnel is needed to be astricted,which relies on the development of the correlative legal mechanism.In tunneling behavior adopted by the majority shareholder,the related party transactions became one of the most commonly used method because of its complexity.Every coin has two sides,related party transactions has its advantages that it helps to keep agency costs down between conglomerate and improve the competitiveness of the enterprises in the external market.But it also has its disadvantages that the majority shareholders can use their controlling position to tunnel the listed company for their own interests by this means.In recent years,such cases have emerged continuously,and the interests of minority shareholders have harmed seriously because of that.Therefore,studying on the tunneling behavior of majority shareholders in related party transactions and putting forward countermeasures for further improvement is significant.Taking Huaze Cobalt and Nickel Company as a case,adopting literature research and case analysis to deeply analyze the causes,methods and economic consequences of tunneling by the major shareholder through the use of related transactions.We found that:(1)in general,based on the economic man supposition,tunneled listed companies,major shareholders will not blindly because it undermines the value of the company,adverse to the majority shareholder hold equity of listed companies for a long time,when the company ran into trouble,they will take certain measures to support,tunnelling and propping behavior tend to be a coexistence.And in this case,the study found that the majority shareholder of this company using related party transactions to transfer,the way is one size fits all.We did not find any evidence about behavior of propping in the case study.majority shareholder family take reckless,as if trying to completely tunnel the listed companies,and then threw aside to let the company delisted;(2)because of Huaze Cobalt and Nickel Company growth,concentrated ownership structure,some defects of internal governance mechanism and external supervision small and medium investor protection level is not high,under the effect of these factors together,the family of major shareholders of listed companies to achieve its tunneling behavior by means of related party transactions.(3)In this case,the major shareholders of Huaze Cobalt and Nickel Company took advantage of the related party transactions to hollow out mainly through the related party fictitious trade and bill business,nonoperational appropriation of the listed company's funds and related guarantee;(4)The tunneling of the listed company leads to the deterioration of the company's financial situation,further affects the company's refinancing ability,damages the enterprise value and the image of the listed company,seriously damages the interests of minority shareholders,and has a bad impact on the capital market.In this regard,in the aspect of internal governance,it is suggested to optimize the ownership structure,strengthen the checks and balances of ownership,and improve the internal governance structure of the company.In external governance,it is suggested that strengthening supervision,intensify punishment afterwards and establish corresponding compensation mechanism,perfecting the relevant laws and regulations,improve the proceedings,and to strengthen the supervision of intermediaries,the punishment to effectively protect the interests of minority shareholders,effectively guard against and constraint the hollowed behavior of major shareholders,guarantee the healthy and orderly development of our capital market.