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Thinking of the internal control of the related party transactions of listed companies tradable environment

Author: FuJun°°CaoJun From: www.yourpaper.net Posted: 2009-04-03 10:08:08 Read:
[Abstract] This paper discusses the new changes in the related party transactions that may arise in the tradable environment analysis of transactions of public companies face the risk control and internal control deficiencies, improve the related party transactions of internal control specific ideas.
[1] full circulation; related party transactions; internal control

Related party transactions that may arise in the tradable environment changes

(A) the split share structure reform the positive impact of related party transactions
End of 2006, China has basically completed the split share structure reform. Tradable environment of China's A-share listed companies in the former state-owned shares and legal person shares and public shares tradable, the right to share price gains, two stock market performance has become both common focus, the interests of minority shareholders converge. Largest shareholder by virtue of the control status of the use of non-fair related party transactions "hollowing out" of listed companies caused by the secondary market price fell again instead of "beggar thy neighbor", is the largest shareholder and the bad behavior of listed companies will be subject to self-restraint, the major shareholder assets The value of the market will procure pay more attention to the benefits of the company's development. Therefore, the major shareholder will be more inclined to inject quality assets into the listed company, to enhance the performance of the company. Between listed companies and their controlling shareholder easier for mergers and acquisitions, integration of resources, promote the development of listed companies.
(B) the possibility of non-fair related party transactions occurred in the tradable environment and motives
Split share structure reform solves "the stock split, the interests of the split" and other issues, but did not fundamentally solve the widespread due to the dominance of the governance structure of listed companies, major shareholders will still be able to above the top of the minority shareholders, non-fair related party transactions. Wu Ming (2007) by modeling analysis showed that in the case of tradable equity, shareholders may still select the "hollowing out" of listed companies resources strategy. The lower the proportion of large shareholders, the lower the company's ROE, the higher the effective occupation of the resources, the greater the likelihood and extent of the resources of listed companies occupation. Therefore, after the completion of the share reform, major shareholders due to the payment of the price, holdings of shares, the encroachment of related party transactions may be more hidden assets of the company in order to obtain a higher income, a lower proportion of shareholding largest shareholder, to the detriment of the interests of the Company and its minority shareholders .
Largest shareholder as a new group of investors into the secondary market, the interests of major shareholders and stock prices are closely tied together, large shareholders may whitewash the financial statements, false disclosure, insider trading and other means, and even collusion with institutional investors market manipulation and transfer of benefits, and one of the whitewash financial statements related party transactions. Therefore, the non-fair related party transactions motive will be more diverse and not limited to 'the security shell Zhaimao ", the finance qualification, as well as completion of the share reform commitments, management equity incentive holdings or selling company stock to enhance the motivation of the share price and other . For example, a listed company announced the largest shareholder is the object placement program, the largest shareholder entirely possible related party transactions hidden profits, the release of bad news, or non-related persons acting in concert in the secondary market to suppress the price and other means to reach to lower prices for the purpose of holdings of shares in listed companies.
The
tradable environmental non-fair related party transactions trend in (c)
In 2006, China began to implement the new "Company Law", the introduction of large shareholders malicious emptied listed companies to apply the principle of piercing the corporate veil, clear damages related parties of the company's responsibility and associated directors vote avoidance system. In the same year promulgation of the "Criminal Law Amendment (6) provides: manipulation of listed companies unfair, unfair related party transactions the company suffered a major loss for the benefit of persons responsible for criminal responsibility. Improve the laws and regulations and the cost of illegal, will be effectively curbed to some extent, the major shareholder of the misconduct of the non-fair related party transactions.
In tradable, non-fair related party transactions and will not be a powerful deterrent of the major shareholders of shares in circulation changes in the nature and legal and completely disappeared because of changes in shareholders' earnings and interest orientation, the nature of the related party transactions, ways and means will become more complex and diversified. The largest shareholder may take more subtle, indirect ways (such as related party transactions non-related) occupation of listed companies and the interests of minority shareholders, to avoid regulation and legal liability.

Second, the existing problems in the control risks faced by the related party transactions and internal control

The
risk control facing (a) Related party transactions
1. Strategic risk. Non-fair related party transactions is not reasonable allocation of Enterprise (Group) internal resources, reduce transaction costs, but will reduce the capacity and operational efficiency of capital operation.
2. Operational risks. Related party transactions internal control the design unreasonable or improper control may lead to non-normal transfer of profits and to guarantee the litigation, damage the interests of the shareholders and creditors of potential problems for the sound operation of the enterprise.
3. Financial risks. The company on the identification of related parties related parties and related party transactions are not clearly defined, an error occurred, leading to over-or underestimate the amount of related party transactions, or recognized due to the transaction costs or income with related parties in advance or back, resulting in financial report information distortion.
4. Asset security risk. Largest shareholder may transfer through the non-fair related party transactions listed companies' assets, resulting in the production and operation can not be normal.
5. Compliance risk. Non-fair related party transactions in violation of the relevant provisions of the relevant regulatory authorities of the State, the transactions behavior is defined as the violation of related party transactions, resulting in the punishment of the regulatory bodies.
(B) Related party transactions deficiencies in internal control
(Administrative punishment according to the China Securities Regulatory Commission decided to book and the Shanghai and Shenzhen stock exchange condemned the announcement and consolidation analysis)
Figure 1 shows that the outstanding problems that exist in the internal control of listed companies in China related transactions have:

1. Lack of classification of the related party transactions authorized approval system. Significant related party transactions not been approved by the general meeting or the Board to consider but by the decision of the chairman or general manager, association directors did not shy away from voting on related party transactions do not perform the necessary decision-making process has become unfair related party transactions of listed companies of repeated world.
2. Lack of independent directors of the related party transactions prior audit system. Some of the company's independent directors or to the credit of the guarantor operating prior audit or audit fair pricing of related party transactions, or an independent opinion on the related transactions occurred compliance with statutory procedures, the independent directors omission undermines the legitimate rights and interests of the minority shareholders and creditors.
3. Lack of information on related party transactions disclosure controls. Be punished or reprimanded almost all listed companies there are not timely disclosure of related party transactions, incomplete, there are significant omissions and providing false information and other defects. The critical control of listed companies do not want this information released to the public, the use of hysteresis to cover non-fair related party transactions disclosed or deliberately concealed the related party relationships and transactions to achieve the purposes of to manipulate profits or transfer of assets.
4. Lack of control of the pricing of related party transactions. An important criterion to determine whether the related party transactions fair prices of related party transactions. Related party transactions is more complex, with a strong professional, the pricing of related party transactions based on the lack of uniform standards, fair pricing depends on the statement of the Board. In disclosed equity transfer and replacement, transfer of assets and the acquisition of related party transactions pricing different ways, such as by the net book value of assets, the assessed value, the price of the agreement, the fair market price, pricing flexibility, which is the number of listed companies can take advantage of non-fair related party transactions an important means to manipulate profits or transfer of assets.
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