Research On The Motivation And Economic Consequences Of Listed Companies Setting And Cancelling ’Golden Parachute’ Clause

By the end of 2008,China’s share-trading reform has been basically completed,therefore the A-share market has entered a fully tradable era and stock liquidity increased.Some listed companies with high equity dispersion and low shareholding ratio of major shareholders are facing significant hostile takeover risks.In order to resist potential hostile acquisitions,some listed companies have chosen to set up a’golden parachute’ clause in their articles of association.The golden parachute’ clause is one of the anti-takeover clauses,and its core content is that if the company’s management is dismissed before the expiration of their term of office,they will be able to receive financial compensation several times equal to their annual salary.Although the ’golden parachute’ clause can alleviate agency issues,build a credible commitment,promote management to be more loyal to their duties and have a longer-term business vision,in order to improve company value and shareholder wealth.However,since the direct beneficiary of the ’golden parachute’ clause is the management,and the compensation amount involved is huge,’golden parachute’ clause can be used by the management in practice as a tool for transferring wealth and damaging corporate value.Because of this,the ’golden parachute’ clause has received close attention from investors and regulatory authorities since it was introduced into China.There have been studies on the ’golden parachute’ clause,mostly focusing on the markets of developed countries,and few literature studies have been conducted on the application of the ’golden parachute’clause in China.Unlike the capital markets of Western developed countries,China’s capital market started relatively late,with inadequate laws and regulations,and more prominent agency issues.Therefore,studying the practice of the ’golden parachute’clause in China is of great significance for the corporate governance of listed companies and the protection of small and medium-sized investors in China.This article uses a case study approach to study the motivation for listed companies to set up and cancel the ’golden parachute’ clause and the economic consequences.There are two reasons for choosing the case study method in this article:First,by the end of 2022,fewer than 30 A-share listed companies in China had set up ’golden parachute’ clauses,making it difficult to obtain sufficient data for empirical research;Second,the case study method is suitable for answering the ’why’and ’how’ questions.Using the case study method can deeply explore typical cases with a long time span and summarize and summarize them.The main research issue of this article is why listed companies should set up and cancel the ’golden parachute’clause and what economic consequences will be caused by the golden parachute’clause.Moreover,the time span of the events studied in this article is relatively large,so the case study method is suitable.This article selects China Baoan Group as a case enterprise because it has the following three prominent characteristics:First,China Baoan Group has successively established and cancelled the ’golden parachute’ clause.This article can study the reasons and economic consequences of the establishment and cancellation of the’golden parachute’ clause from both positive and negative aspects.Secondly,the process of setting up and canceling the ’golden parachute’ clause in China Baoan Group is accompanied by the replacement of major shareholders.This article can study the role of the ’golden parachute’ clause in the fight for control from the perspectives of the original major shareholder and the acquirer.Third,in order to promote the cancellation of the ’golden parachute’ clause by China Baoan Group,the regulatory minority shareholder China Securities Small and Medium Investors Service Center(hereinafter referred to as ’the Investment Service Center’)has launched a public solicitation of voting rights for the first time.The case of China Baoan Group’s successful cancellation of the ’golden parachute’ clause can provide a reference for small and medium shareholders to safeguard their own rights and interests and promote listed companies to modify their articles of association.In terms of analytical thinking,this article first combs the process of setting up and canceling the ’golden parachute’ clause in China Baoan Group;Secondly,it analyzes the reasons for listed companies to set up golden parachute’ clauses from three perspectives:ownership structure,management power,and company business status.Secondly,it analyzes the reasons for listed companies to cancel ’golden parachute’ clauses from two perspectives:acquirers and minority shareholders;Finally,the economic consequences of setting up and canceling the ’golden parachute’clause in listed companies are analyzed from the perspective of market reaction,company value,and corporate governance.Based on the case study,this paper draws the following conclusions:First,for the purpose of consolidating the control rights of major shareholders and encouraging management to have a longer term vision and increase long-term investment,listed companies may set up ’golden parachute’ clauses to resist potential hostile takeovers;Secondly,the reasons for canceling the ’golden parachute’ clause are listed companies’ resistance to external takeover failures,acquirers’ scramble for control of the company,and small and medium-sized shareholders’ demands to safeguard their own rights and interests,and improve corporate governance;Thirdly,from the perspective of economic consequences,although setting ’golden parachute’ clauses in listed companies will bring negative market reactions,reduce company value,and reduce the enthusiasm of small and medium-sized shareholders to participate in corporate governance,it will cause an increase in long-term investment in the short term;The cancellation of the ’ golden parachute’ clause by listed companies will bring positive market reactions,but it does not significantly affect the enthusiasm of shareholders to participate in corporate governance.The theoretical contributions of this article are reflected in two aspects:First,previous studies on the ’golden parachute’ clause have mostly focused on developed countries such as the United States.China’s capital market started relatively late,and the overall environment is different from that of Western developed countries.Corporate control is often held by major shareholders or founders,and laws and regulations on the protection of small and medium-sized investors are not yet perfect,This article studies the application of the golden parachute’ clause in the Chinese market,enriching the research on the ’golden parachute’ clause in emerging markets;Secondly,the case company in this article first set up the ’golden parachute’ clause,and then canceled the ’golden parachute’ clause under the guidance of the acquirer after being acquired.This article can conduct a multi-dimensional analysis from the entire process of setting up and canceling the ’golden parachute’ clause by the company.From a practical perspective,in the process of canceling the ’golden parachute’ in the case of enterprises in this article,the regulatory minority shareholder investment service center actively participated and played an important role.An in-depth analysis of this case can provide a reference for the practice of minority shareholders’ rights protection and regulatory agencies to enrich regulatory methods.