Research On Tunneling Behavior Of Major Shareholders In "Double High" Merger And Acquisition

In the domestic capital market,it is not uncommon for controlling shareholders to use various means to tap into the interests of the company.In order to maintain a healthy and orderly operation of the market,the regulatory authorities have put in place a series of regulatory measures to curb the occurrence of such acts and reduce the loss of interests of listed companies.Despite this,there are still phenomena in the market in which major shareholders misappropriate company funds and endanger the rights and interests of small and medium shareholders,and the means of exploitation are diverse and the process of exploitation is difficult to detect.Therefore,it is of theoretical and practical significance to take major shareholders as the subject of study to understand their tunnel mining behaviour,in order to prevent the transfer of interests by major shareholders,protect the rights and interests of small and medium shareholders and maintain the stability and healthy development of the domestic capital market environment.Based on the reality that "double-high" mergers and acquisitions occur frequently in the domestic capital market,this paper focuses on tunneling by major shareholders,using the nine completed mergers and acquisitions of Tian Shen Entertainment between 2015 and 2017 with performance commitments as the research object,and focuses on whether there is tunneling by major shareholders behind these nine mergers and acquisitions.The study focuses on the existence of tunneling behaviour of major shareholders behind these nine M&A activities.Firstly,by analysing the internal and external conditions under which the major shareholder of Tianshen Entertainment carried out tunneling activities,we found that the major shareholder took advantage of the deficiencies of the current internal governance structure and the weak external regulatory environment to carry out tunneling activities.On this basis,the paper further explores the specific ways in which Tianshin Entertainment’s major shareholders carry out tunneling and finds that Tianshin Entertainment’s controlling shareholders mainly use M&A activities with high premiums and high performance commitments to push up the share price,thereby creating an arbitrage space to carry out tunneling.With the company’s share price at a high level,the controlling shareholder continued to cash out by pledging and reducing its shareholding.At the same time,controlling shareholders also tunnel dive through related party asset swaps and irregular guarantees to realise benefit transfers.These tunneling practices will magnify the company’s operational risks,which in turn will lead to the company’s financial risks,and eventually transmit negative signals of the company’s poor development to the market,causing significant fluctuations in the company’s share price.Therefore,based on the financial performance of the case company and the capital market reaction,this paper uses financial index analysis,Z-value model and Tobin’s Q-value to reveal the serious impact of the tunneling behaviour of the controlling shareholder of Tianshin Entertainment through the "double-high" M&A.In terms of financial performance,during the tunneling period,the company’s profitability seriously deteriorated,earnings sustainability was impaired,earnings quality was poor and the company’s ability to generate value was weak;debt was overdue,endogenous financing capacity was insufficient,external financing was blocked,debt servicing capacity continued to decline and the level of financial risk was high.The results of the analysis of Z-value,Tobin’s Q-value and related financial indicators also confirm the negative effects of the tunneling by the majority shareholder on the company’s operation and capital market,which seriously affects the sustainable development of the company.As the company’s development was severely compromised by the tunneling behaviour of the controlling shareholder,it was forced into bankruptcy restructuring,and the company’s minority shareholders took control of the board of directors and began to seek a governance transformation,opening up a new pattern of shared governance between professional managers and minority shareholders.Similarly,this paper compares and contrasts the new changes in the governance of the majority shareholder’s tunnel-digging behaviour at both the operational performance and market response levels.Finally,the paper proposes recommendations and measures from both internal governance and external regulation,with a view to providing lessons and assistance to curb tunnel-digging behaviour of large shareholders in China’s capital market.