An Empirical Study of Chinese Large Shareholders’ Behavior under the Background of the Split Share Structure Reform

Abstract

Using the data on related-party transactions between Chinese publicly listed firms and their controlling shareholders in 2005, this article empirically examines the characteristics of related-party transactions and their impact on the firms’ performance. The results show that the companies that completed related-party transactions with their large shareholders possess a higher concentration of ownership structure and lower P/E ratios, and their performance is significantly improved after these transactions. The current related-party transaction is also not used to achieve the necessary requirements for refinancing and the tunneling behavior of large shareholders follows a significant declining trend. Further regression analysis shows that the size of related-party transactions is positively correlated with the large shareholders’ equity ratio, and is negatively related to the P/E ratio and the performance of listed companies prior to the transactions. Finally, the research reveals that Chinese listed company performance has a significant positive correlation with the size of related-party transactions and the large shareholders’ equity ratio. Since China launched the split share structure reform (SSSR) in 2005, we have attributed all the above results to the change in the environment caused by the SSSR and concluded that large shareholders prop up a listed company through related-party transactions.