Study On The Financial Impact Of Large Shareholders Using Employee Stock Ownership Plans To Reduce Their Shareholdings

After the split share structure reform in China,a large number of restricted shares entered the Secondary market,and the reduction of large shareholders’ holdings became increasingly fierce.In May 2017,the China Securities Regulatory Commission issued the strictest new regulations on reducing holdings in history,which strictly restricted the malicious reduction of major shareholders,but did not completely eliminate it;At the same time,employee stock ownership plans emerged in China in 2013,when the China Securities Regulatory Commission issued guidance on the pilot of employee stock ownership plans for listed companies,providing policy guarantees for the initial development of employee stock ownership plans in China and gradually being adopted by more and more companies;Subsequently,in practice,some major shareholders of listed companies found that using employee stock ownership plans to reduce holdings can evade policy regulation and achieve the goal of reducing holdings and arbitrage.This is because listed companies can first announce the news of the implementation of employee stock ownership plans,send a positive signal to the Secondary market,stimulate the enthusiasm of investors,temporarily raise the company’s share price,and then major shareholders choose the right time to reduce their holdings,forming a risk-free arbitrage model.At the same time,due to the strictest new regulations on stock reduction issued in 2017,which stipulated that the transferee of a major shareholder’s stock reduction must not sell the stock again within 6 months,and the characteristic of employee stock ownership plans is that the lock-in period is relatively long(usually greater than 12 months),the use of employee stock ownership plans to achieve the purpose of reducing shares is highly praised among the major shareholder group and is increasingly being applied in practical operations.However,it should be carefully studied whether employee stock ownership plans with implicit motivation to reduce holdings can still have the expected positive effect on the company.If some major shareholders want to use the trend of employee stock ownership plans to reduce their holdings and arbitrage,in order to avoid regulatory disruptions to China’s capital market,it not only distorts the original intention of employee stock ownership plans,but also is not conducive to the long-term stable development of enterprises.When studying the reduction of shareholding by major shareholders of Company A and the employee stock ownership plan,this article puts the two within the same research framework.Based on the fact that major shareholders of Company A use the employee stock ownership plan for reduction,a case study is conducted to explore why major shareholders of Company A use the employee stock ownership plan for reduction,and what is the true purpose behind it,If there is a motive behind the implementation of employee stock ownership plans to shield major shareholders from reducing their holdings for self-interest,can employee stock ownership plans with this motive have the desired effect,and what impact will they have on the company’s short-term stock price and long-term financial indicators.The paper is divided into five parts.The first chapter is the introduction of the article,which explains the background and significance of the research topic of the paper,clarifies the financial impact of the major shareholders taking Company A as the case,using the employee stock ownership plan to reduce their holdings,describes the research content of this article and the methods used in the research,lists possible innovations and the article’s Technology roadmap.The second chapter is related concepts,theoretical foundations,and literature review,defining the core concepts of this article,introducing the theoretical foundations involved in the research process of the article,and their applications in the article.This article reviews relevant literature on the motivations,methods,and consequences of major shareholder reduction,as well as research results on incentive and non incentive motivations of employee stock ownership plans.Major shareholders use the practical process of employee stock ownership plan reduction to provide a systematic overview of previous literature.The third chapter introduces the case of A company’s major shareholders using the employee stock ownership plan to reduce their holdings,outlining the basic situation,equity structure,and industry situation of A company’s enterprise.It also sorts out the design and implementation plan of A company’s employee stock ownership plan and how the major shareholders use the employee stock ownership plan to achieve the purpose of reducing their holdings.Confirming that the employee shareholding plan of Company A does indeed imply the purpose of reducing the shareholding of the major shareholder Cai Jia.The fourth chapter analyzes the case of major shareholders of Company A using employee stock ownership plans to reduce their holdings,combs out the reasons why major shareholders of listed companies use employee stock ownership plans to achieve the goal of self serving share reduction,analyzes the short-term market impact through the Event study method,and calculates the long-term value of the enterprise by comparing the changes in corporate solvency,profitability,growth capacity,and operating capacity.The fifth chapter summarizes the previous research results,draws conclusions on the financial impact of major shareholders using employee stock ownership plans to reduce their holdings,and proposes reasonable suggestions from the perspectives of small and medium-sized investors,internal managers of listed companies,and government regulators.Finally,the shortcomings in this study are reflected on and improved methods are organized.This article has four research conclusions: firstly,employee stock ownership plans have become a common means for major shareholders to reduce their holdings due to self-interest motives;Secondly,reducing holdings through employee stock ownership plans due to self-interest motives will have a negative financial impact on the company;Thirdly,listed companies should have reasonable motivation and timing when implementing employee stock ownership plans;Fourthly,there are loopholes in the current regulatory policies targeting the new approach of major shareholders using employee stock ownership plans to reduce their holdings.