Case Study Of Major Shareholder Pushing Up The Share Price To Reduce His Holdings

After the implementation of the equity division reform in 2005,China’s stock market entered the era of full circulation,and at the same time,the "gate" for major shareholders reducing their shareholdings was also released.With the release of a large number of restricted shares in listed companies,major shareholders and their associates can trade their shares in accordance with the relevant regulations,thus the fervour of major shareholders’ reduction continues to rise.According to Wind database,1,594 listed companies reduced their shareholdings in 2020,with an accumulated amount of RMB 555.460 billion.There is nothing wrong with a major shareholder of a listed company reducing its shareholding in accordance with the relevant regulations and making a profit.However,some major shareholders have made use of their control rights,information advantages and various means to manipulate the price of the company’s shares to reduce their holdings in order to gain high profits,while at the same time harming the interests of other small and medium shareholders,and even causing drastic fluctuations in the price of shares on the stock exchange.Since the equity division reform,the phenomenon of shareholding reduction by major shareholders of listed companies in China has intensified,and the number and amount of shareholding reduction has been rising year after year.At the same time,in order to capture more interests,the phenomenon of major shareholders using company information disclosure,initiating mergers and acquisitions before the reduction,manipulating the company’s surplus,issuing "high transfer" distribution plan and other means to manipulate the stock price of the stock division to reduce their holdings at high levels to cash out has become more and more intense.The frequent reduction by major shareholders has not only led to a plunge in share prices,the interests of small and medium shareholders have been damaged,but also seriously affected the stability of China’s stock market.It has also seriously affected the healthy development of China’s stock market.Based on a review of the research findings of domestic and international scholars,this thesis analyses the share price manipulation and shareholding reduction of Company H based on signalling theory,information asymmetry theory,principal-agent theory and the theory on private benefit of control.We found that the major shareholder of Company H used its control and information advantage over the company to push up the company’s stock price by various means such as initiating mergers and acquisitions and launching a stock option incentive scheme before the shareholding reduction,and the major shareholder gained huge benefit from the shareholding reduction,while the company’s stock price fell sharply after the reduction,to the detriment of the interests of small and medium shareholders.By analysing the means and economic consequences of share price manipulation and shareholding reduction by major shareholders of Company H,this thesis not only provides a basis for securities regulators to regulate shareholding reduction by major shareholders and improve the relevant regulations on major shareholders,but also imposes "precise regulation" on holdings reduction by major shareholders.At the same time,we also help investors in the securities market to identify the real motives of major shareholders in reducing their shareholdings,mergers and acquisitions and equity incentives,and empirical evidence for their securities investments are provided.This thesis examines the behaviour of Company H in pushing up its share price to reduce its holdings using the literature research method,the case study method and the event study method.The thesis is constructed into five parts.The first part is the introduction.First,it introduces the background of holdings reduction by major shareholders,followed by the significance of this thesis from both theoretical and practical aspects.It summarises the existing literature on shareholding reduction and share price manipulation by major shareholders.The second part is the theoretical overview.This part introduces the specific concept and relevant regulations on shareholding reduction by major shareholders,and outlines the main means of shareholding reduction by major shareholders,analyses the motives of shareholding reduction by major shareholders,then introduces three ways of share price manipulation by major shareholders and elaborates on the relevant theories.The third part is an introduction to the overall case of the shareholding reduction by the major shareholder of Company H.This part firstly introduces the basic overview of Company H,then details the process of shareholding reduction by major shareholders of Company H,and finally analyses the motives of shareholding reduction.The fourth part is the case study.It examines the means by which the majority shareholder pushed up the share price before the reduction and the reasons for its success;finally,we analyse the economic consequences of the reduction of Company H’s shareholding by pushing up the share price from various aspects.Part five contains the conclusions and insights of the case study.This part summarises the hazards of major shareholders pushing up share prices to reduce their holdings,combining the theory in the previous chapters with the case study of Company H.Specific recommendations are made at three levels: market regulators,listed companies and small/medium-sized investors.Compared with the existing literature,the main contribution of this thesis is manifested in two aspects.First,previous studies on share price manipulation by major shareholders have mainly focused on empirical studies.This thesis takes the case of Company H as the research object and explores the manipulation of holdings reduction at high share price by major shareholders,thus enriching the relevant research.Second,most of the existing literature has explored the manipulation of holdings reduction by major shareholders in terms of manipulation of company surplus,accounting treatment of R&D expenditure and manipulation of information disclosure.This thesis,on the other hand,analyses the holdings reduction behaviour of major shareholders with pushing up the share price before the reduction by launching share incentive plans,initiating mergers and acquisitions,and inflating revenue.Thus,we expand the relevant research in terms of the means of holdings reduction manipulation by major shareholders.