Related-party Transactions In Listed Companies And Tunneling Of Major Shareholders

There are two types of agency problems in corporate governance.The first type of agency problems arises from the shareholders and agents relationship,and the second type arise from the external-shareholders and internal-shareholders relationship.The board of directors has the absolute power to decide,and the company’s production activities are completely controlled by the major shareholders.Even the choice of senior management is also determined by the major shareholders.The minority shareholders have very little or no speaking right,so the second type of agency problems in listed companies in China is more prominent.Since its establishment in 1990,China’s capital market has developed for nearly 30 years.So far,there have been 3,849 listed companies in Shanghai and Shenzhen,with a total market value of more than RMB59 trillion.Listed companies have a significant influence on the health and stability of Chinese capital market.The tunneling behavior of major shareholders seriously affects the normal operations of listed companies,seriously damages the rights and interests of small and medium shareholders,and seriously interferes with the sound and stable development of China’s capital market.Therefore,it should be improved that both the internal control of the enterprise and the external supervision of the regulatory department.Based on this background,this article first reviews the relevant research literature inside and abroad.Based on the theory of transaction costs,principal-agent theory,incomplete contract theory,and evolutionary game theory,this paper deals with related-party transactions,major shareholder tunneling behaviors,and both.The relationship between them is analyzed theoretically,the status of related-party transactions and related internal control in China’s listed companies is statistically analyzed,and the causes and effects of major shareholder tunneling are explored.Secondly,taking Qianshan Pharmaceutical’s major shareholder tunneling behavior as a case,it explores in depth the process,consequences and reasons of the major shareholder hollowing out.The investigation found that the methods used by the major shareholders of Qianshan Pharmaceutical Machinery include highpremium mergers and acquisitions,directly appropriate listed company cash,and provide related guarantees for close relatives of major shareholders.These actions have caused the company’s financial situation extremely deteriorated,operating performance fell sharply and the share price shrunk as high as 97.11% within four years,seriously harming the interests of small and medium shareholders.Further analysis found that the subjective reason for major shareholder tunneling was that the major shareholder did not intend to continue operating the enterprise,and only had the motive to obtain private benefits as much as possible.The objective reason was that the internal control of the company’s related-party transactions was defective,and the approved approval procedures are not strictly operated.What’s more,the lack of power balances mechanism of major shareholders,coupled with the insufficient supervision and punishment of regulatory agencies,the related laws and regulations are not perfect,leaving a lot of opportunities for major shareholders to hollow out.Finally,it puts forward suggestions for improvement from two aspects of corporate governance and the legal system.And based on the conclusions of the study,it makes recommendations to the three stakeholders: regulators,financial institutions,and small and medium shareholders.