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An Economic Analysis of the shareholder proposal system

Author: LiRongĦĦDuanLi From: www.yourpaper.net Posted: 2009-10-04 05:59:15 Read:
Abstract shareholder proposal system theory of shareholder activism default basis, in order to protect the legitimate interest of our small and medium shareholders. Whether there is positive shareholders to decide the legitimacy of the introduction of this system, and whether it is conducive to the protection of interests of minority shareholders, scientific reflects the design of the system or not. The shareholder proposal system under the perspective of the theory of collective action, the legitimacy of institutional investors and irrational minority shareholders may become active shareholders, compared with the Corporate Governance in China reality, certain forward-looking. Existing system design limit irrational shareholders to exercise their rights on surviving the legislative purpose of the protection of the interests of minority shareholders, Deficiencies in Design constraints provide incentives of small shareholders, the float elements need to be further reduced, to limit the rights of the controlling shareholder to support institutional investors.
Keywords shareholder proposal; collective action theory; positive shareholder

Shareholder proposal system design as a brand new system in the second paragraph of Article 103 of the new Companies Act embody and confirm that it is self-incurred from the date of the legitimate interests of the protection of minority shareholders is given the task of people look forward to. However, the introduction of a system whether rationality, the system design is scientific, will directly affect the realization of the legislative purpose of the system. This paper from collective action theory point of view on the reasonableness of the shareholder proposal system, for scientific analysis.

Economic Analysis of a shareholder proposal system path

(A) the shareholder proposal system of legitimacy verification path. Theoretical support for the system design needs to safeguard its reasonable shareholder proposal system is no exception, shareholder activism default theoretical basis. Shareholder activism mature Western market economy countries developed outside shareholders to safeguard their own interests and actively participate in the actions of the corporate governance philosophy, the concept of shareholders as the company's investors and owners, out of concern for the purpose of good development and become actively shareholders, hand voting behavior affect the company's agent, in order to maximize their own interests. This view has been endorsed by many scholars, American scholar Carlson considered the owner if it is positive, and accurate positioning, will play a key role to create value and achieve business prosperity. The Company's shareholders are willing to take positive action to participate in corporate governance, shareholder proposal system designed as a prerequisite for the realization of the legislative purpose, the rights body must rely on this system of initiative and enthusiasm to play. In other words, only actively involved in the presence of the shareholders of the corporate governance, or the only shareholders express their views to try to exert influence on the company, the shareholder proposal system have a foothold, it may perform its function. Verify the presence of active shareholder, namely to verify the reasonableness of the shareholder proposal system.
(B) the shareholder proposal system design of scientific verification path. The scientific nature of the shareholder proposal system is mainly reflected in the design of the system itself can achieve preset legislative purpose. Scholars generally believe that the right to make proposals Companies Act given shareholders the right to participate in company management, special measures to protect the legitimate interests of minority shareholders, the shareholder proposal regime legislation aims to protect the legitimate interests of minority shareholders. Where the design of the system, help to achieve this purpose is the scientific design of the system. On the contrary, the design unscientific. Therefore, the scientific verification shareholder proposal system, that the proposed system can verify existing shareholders to help protect the legitimate interests of minority shareholders.

Shareholder proposal institutional economics analysis of the theoretical tools - the theory of collective action

Famous theory of collective action theory is a professor of economics at the University of Maryland Olsen individuals in the study of collective public action strategies, as a branch of public choice theory, its main points: First, because of the pursuit of self-interest, rational individuals will not be in the collective interest action. From the cost-benefit analysis, a small group in the provision of public goods is more effective than a large group. Selective incentives than the group without such means easier, more effective way to organize collective action. ISI collective action theory as an analytical tool has the following feasibility:
1, the ubiquity of the interest groups (groups). Although the theory of collective action initially economics of decision-making tools for the analysis of the conduct of members of the political blocs, but interest groups are common, each person in a different interest groups. The number of shareholders of the Company generally more except for one company, especially a large number of shares of the shareholders of the Company, is easier to form a variety of interest groups, widespread largest shareholder in the company, minority shareholders, the investment shareholders, speculative shareholders, institutional investors by different groups of shareholders have different interests. Shareholders of our company, also divided into different interest groups: the controlling shareholder group, the controlling shareholder of the outside of the large and medium-sized shareholders (collectively, the shareholders) groups occupy different company resources can zone because each shareholder, minority shareholder groups. Controlling shareholder is that capital contributions accounted for more than 50% of the total capital of a limited liability company or shares held by shareholders accounting for more than 50% of the total Corporation share capital, and the capital contributions or hold the shares in accordance with the provisions of section 217 of the new Companies Act, although the proportion is less than 50% of the voting rights enjoyed by the capital contributions or shares held enough to have a significant impact on the resolution of the shareholders' meeting, shareholders too will shareholders. Under normal circumstances, the controlling shareholder is the company's largest shareholder, with fewer, generally as a cabal of collective action theory says. Group of small shareholders, minority shareholders hold shares in the company amount to little or negligible, but a large number of large groups, collective action theory says. In shareholders in the company's share of the shares and the number of range between controlling shareholders and minority shareholders, the shares of which share greater than small shareholders and less than a controlling shareholder, the size of the group is more than the controlling shareholder is less than small shareholders, in practice, mainly reflected institutional investors attention.
2, the public nature of the economic character of the behavior of shareholders and shareholder proposals. Smith believed that people of all economic activities are economic, everyone would only consider their own interests, and its maximization. The the shareholders funded to participate in the establishment of the company, and the behavior of the operation and management of the company itself is an investment management behavior, rational prompted people to make an economic decision-making is always thoughtfully through cost - benefit analysis or avoiding disadvantages principles on facing every possible opportunity, the goals and means of achieving the goals to be weighed against optimal choice, and so have the economic characteristics in order to find out a program to bring maximum benefits. Meanwhile, shareholders submit proposals to participate in corporate governance, each act will cost benefit both the company as a whole or their in which groups of people are public goods, public goods externalities, and each shareholder of economic characteristics it The analysis is thus in line with the analysis of the theory of collective action paradigm, it can be used collective action theory to analyze the behavior of different groups of shareholders decision-making mode.

Three different shareholder groups proposal system utility analysis

(A) the controlling shareholder groups utility analysis. As mentioned above, the controlling shareholder of the group belong to a small group, so few in number, but the possession of a large amount of the Company's shares through the exercise of the right to make proposals to influence corporate decision-making and its benefits may be much greater than the cost. Bear the costs onto companies and also because the control of the Board of Directors of the company, you can very easily exercise of the right to make proposals, without incurring the cost directly to enjoy most of the benefits brought about by the right to make proposals, and therefore the exercise of the right to make proposals enthusiasm, especially controlling shareholder for the case of one gains all owned by all of its controlling shareholder more enthusiasm spontaneous exercise of the right to make proposals affect the company's decision-making. But whether it can be said that the presence of active shareholder of the controlling shareholder can prove the correctness of the theoretical foundation shareholder proposal system default - shareholder activism? I believe that is not true, because the controlling shareholder is not equivalent to shareholders activists said external shareholders. Shareholder activism in the Board of Directors centrism governance model, a high degree of separation of company ownership and management rights case, the interests of the shareholders and the board of directors is not consistent, and the shareholders of the Company can not control the board of directors, to protect their own interests in order to balance the board of directors, and a shareholders actively involved in corporate governance action concept. Controlling shareholder company, especially in our country "due to the dominance of" serious cases, the controlling shareholder of the control of the Board of Directors, the Board of Directors to some extent become autocratic tools, the controlling shareholder, the controlling shareholder and the board of directors interests consistent. Therefore, I believe that non-shareholders of the controlling shareholder activism in positive action to safeguard their own interests and shareholders, shareholder activism shareholder proposal system nor theoretical support for the controlling shareholder of default; interests of the controlling shareholder through its control of the Board of Directors And realized, should not enjoy the right to make proposals, or at least should be restricted and not like the existing system design without any restrictions. Our new section 103 of the Companies Act provisions alone or together hold more than 3% of the shares of the company's shareholders in the general meeting of shareholders has proposed, temporary proposal that any shareholders are entitled to the right to make proposals. It is in this broad, led to the proposal of the phenomenon of a large number of the controlling shareholder in the practice, and gave birth to the controlling shareholder proposal system to circumvent the provisions of relevant laws and danger of prejudice to the legitimate interests of minority shareholders. (B) the analysis of the effectiveness of the small shareholder groups. The number of minority shareholders little share of the possession of shares, and from number sense belong to the large group. Accordance with the point of view of the theory of collective action, the minority shareholders of each rational cost-benefit analysis will pursue to maximize their own interests and not to take action for the collective good submit proposals; same time, groups of small shareholders is only an academic concept, reality and not the actual existence of such a class of organized groups, which can not be like other organized groups can take the appropriate incentives to motivate potential positive shareholders in the collective interest action and thereby enhance the potential positive shareholder compensation action shareholder suffered loss of enthusiasm . Rational minority shareholders in the group of small shareholders can not become an active shareholder will not make proposals affect the company's decision to provide public goods and thus for the entire small shareholder groups. Therefore. Shareholder proposal system is not the default for the rational minority shareholders, naturally, will not be able to achieve the purpose of protecting the interests of minority shareholders. The same time, the legislative design of the prevention of abuse of minority shareholders the right to make proposals 3% shareholding elements also rational in front of the small shareholders lose their meaning. However, I also believe that the previous conclusions shareholders rationality assumption, in practice, not every shareholder are rational people do not rule out the possibility of individual irrational minority shareholders to take positive action. Shareholder proposal system to achieve the legislative purpose of protection of minority shareholders, the irrational minority shareholders regardless of the cost income cases should its exercise of the right to make proposals to create a more relaxed environment, in this sense, there are further reduced by 3% shareholding elements necessity.
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