Research On The Behavior Of Large Shareholders Using Exchangeable Bonds And Private Placement To Arbitrage

Arbitrage is defined as the act of investors simultaneously buying and selling the same or equivalent amount of financial products in the same or different markets,with the aim of profiting from price differentials.The combination of exchangeable bonds and private placement by major shareholders of listed companies is a typical arbitrage behavior.On the one hand,major shareholders issue exchangeable bonds at a high price and reduce their holdings in the process.On the other hand,they participate in private placement by listed companies to obtain new shares at a low price,thereby utilizing the price difference between the preceding and the following to form a risk-controllable arbitrage model.Currently,exchangeable bonds have been regulated,but no specific regulations have been involved.In addition,since 2018,the problem of difficult and expensive corporate financing has intensified,and restrictions related to fixed increase have been loosened.The issuance threshold for both exchangeable bonds and fixed increase has been lowered,while the review process has been simplified,and information disclosure is often insufficient.In addition,most listed companies in China are dominant in one share,Large shareholders often use the advantage of control information to arbitrage in the capital market,thereby harming the interests of the target company,investors,and small and medium-sized shareholders.Therefore,this article analyzes the process,motivation,and key factors for the success of arbitrage through the use of a combination of "exchangeable bonds and private placement" by the major shareholder of Merck Home Appliances,Merck Group,and explores the impact of this behavior on various stakeholders.In theory,it has enriched case studies in the relevant fields of arbitrage behavior of major shareholders’ portfolios in listed companies.In practice,it has analyzed the essence and means of major shareholders’ arbitrage using "exchangeable bonds and private placement" portfolios,helping other stakeholders to identify such arbitrage behavior,and providing advice to regulators to improve relevant systems to maintain fairness and order in the capital market.This article adopts two types of research methods: case study and event study.In terms of case studies,take the major shareholder of Merck Home Appliances,Merck Group,as an example to sort out the process of Merck Group’s arbitrage using exchangeable bonds and private placement,clarify the internal motivation and logic of major shareholders using portfolio arbitrage,analyze the reasons for the success of arbitrage,and explore the impact of major shareholders’ arbitrage behavior on stakeholders on this basis,in order to draw conclusions and make recommendations.In terms of event research,the event research method is used to study the short-term market performance of two events,namely,the reduction of exchangeable bonds in exchange for shares and the dilution of major shareholders’ shares by fixed increase,in order to analyze how the secondary market will react to the underlying stock price in the short term under the reduction of major shareholders.This article contains six parts.The first part is an introduction,which first explains the research background and significance of this article,followed by a comprehensive review of domestic and foreign literature on the field of exchangeable bonds,private placement,and portfolio arbitrage.Finally,it determines the research ideas and methods of this article,and points out the possible innovations and shortcomings of this article;The second part is a theoretical overview,which introduces the theory of control gains,arbitrage theory,principal-agent theory,and information asymmetry theory,laying the theoretical foundation for the full text;The third part introduces the basis for case selection,the overview of the case company,and the process of arbitrage by major shareholders;The fourth part analyzes the motivations for major shareholders to issue exchangeable bonds and participate in private placement,and explores the key factors for the success of arbitrage in Merck Group based on the arbitrage process;The fifth part focuses on the impact of large shareholder portfolio arbitrage behavior on large shareholders,target companies,deliverable investors,and small and medium-sized shareholders;The sixth part is the conclusion and inspiration.This article believes that the combination of exchangeable bonds and private placement by major shareholders of listed companies can achieve multiple purposes of financing,reducing holdings,and arbitrage.Secondly,the main reason for the realization of arbitrage is that major shareholders have control over the listed company,while the difference between the exchangeable bonds for stock prices and the fixed placement issue prices is the direct reason for the realization of arbitrage,In this process,the arbitrage behavior of major shareholders is prone to damage other stakeholders.Based on the research content,it is called upon China’s regulatory authorities to strengthen the supervision of exchangeable bonds and directional additional issuance portfolios,and regulate the arbitrage behavior of major shareholders.At the same time,major shareholders should actively assume social responsibility,reasonably utilize financing portfolios to promote the development of the company.Other stakeholders should also improve their investment quality,safeguard their own rights and interests,and jointly maintain market order.