The analysis of the shareholders’ wealth by private placement based on the perspectives of information asymmetric and private benefits of control

Author(s): Jiang Xueqin, Cui Yi

Private placement in China is a special way of equity financing in the capital markets. Due to special equity structure “powerful shareholder” in China listed companies, the private placement is dominated by the major shareholders and has become a covert means of wealth transfer from the listed companies by the major shareholders. This paper Based on the theories of information asymmetry and benefits of control, constructed wealth models for the shareholders’ under different information conditions, that are the condition of complete information, the condition of information asymmetry, and the condition of benefit-control. After the comparative analysis we found that: Firstly, major shareholders have strong wealth transfer motivation in the process of private placement, and this motivation can be well explained by information asymmetry and control benefit. Secondly, the difference of α and β and the difference P0 and P1 are the key factors affecting wealth transfer of major shareholders. Thirdly, information asymmetry cuts down the wealth space between minor shareholders and institutional investors, and the existence of the benefits of control make their wealth space smaller. Our contribution is that we prove the major shareholders’ wealth transfer motivation and the necessary condition for the shareholders transfer wealth in theory, and we make up a good defect to the existing of “heavy empirical and light theory” about wealth transfer by major shareholder.

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