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Non-fair related transactions Issues of Listed Companies in China

Author: NieJun From: www.yourpaper.net Posted: 2010-02-08 09:01:39 Read:
Abstract: The non-fair related party transactions are common in China's listed companies have an important impact on the healthy development of the capital market. From the structure of corporate governance, related party transactions regulatory measures, the management and motivation analysis of the main causes of the non-fair related party transactions, and proposed the corresponding countermeasures.
Keywords: listed companies; non-fair related party transactions

A listed company related party transactions with non-fair related party transactions

Related party transactions of listed companies refers to the obligations of the transfer of resources or events that occur between the listed company or a subsidiary of the listed company associated people. Related party transactions is beyond reproach, a sexual behavior, however, more in real economic activity, the number of listed companies in order to whitewash the results achieved eligible for allotment to refinance or avoid becoming "ST" or "PT often abuse in related party transactions to manipulate profits and inflated earnings, leading to the distortion of accounting information, thus misleading the medium and small investors and hinder the sustained and healthy development of the capital market. Behavior that this association induced by self-serving motives, legal or accounting loopholes in the system, unfair, improper related party transactions, the interests of the damage to the medium and small shareholders, creditors and other stakeholders, to disrupt capital market order non-fair related transactions. Its main manifestations: breach of contract guarantees, non-fair asset trading, improper acquisition or reorganization.

2 listed non-fair related party transactions reasons

The 2.1 listed company equity structure is irrational
Most of China's listed companies are listed by the state-owned enterprise restructuring, the restructuring is not complete, the Company's equity structure is irrational, due to the dominance of the controlling shareholder, to some extent about the listing of the company's operating behavior. The single largest shareholder with absolute control over listed companies, related party transactions by the interests of the output, raise the profits of listed companies to create the illusion of high profitability from listed companies "misappropriating". The more common practice of such related party transactions, in order to foster a listed company, the parent company through shoplifting products, low and sell raw materials to increase the income of the listed companies. In the reorganization of assets, the holding company of high-quality assets into the listed or non-performing assets of listed companies have replacement so as to improve the quality of the shares of the company's assets, the profit transport. In the the asset leasing process, the parent company can adjust the lease price or charge only a nominal fee, or even listed companies is far higher than the level of the market price of assets leased to the Group Company. These listed companies to raise funds tend to be occupied, holding companies or affiliates and this behavior is rarely subject to checks and balances of minority shareholders. Solution of the split share structure, despite some extent limit the irrational behavior of listed companies, but because of the non-tradable shares traded formation of large shareholding advantages as well as the interests of major shareholders and the stock price is closely linked, making large shareholders more motivation no power supervision and restriction operators to manipulate the stock market and stock prices, small shareholders by cost constraints. Inevitably occur due to the lack of restraint, non-fair related party transactions.
2.2 The existing related party transactions imperfect regulatory measures
The specification of the related party transactions of listed companies in China primarily through disclosure. Despite the disclosure system has been formed, but the lack of a high-level system, improve the management of related party transactions and information disclosure of listed companies legal norms, making listed companies to adopt this more subtle association of non-fair related party transactions transactions. Of the related party transactions disclosed in the specification is basically based on the institutional requirements of the Accounting Standards for Business Enterprises and departmental rules and regulations of the China Securities Regulatory Commission. "Company Law", "accounting" high-level legal norms related party transactions not made. China's "Company Law provisions on the disclosure of related party transactions not related party transactions definition, only a small amount of the provisions of the related party transaction restrictions of the fiduciary duty of directors and managers and the special form to make provisions. However, the above provisions are too rough, appeared to be inadequate in various real adjustment related party transactions, non-fair related transactions possible. In addition, the contents of the "Accounting Standards for Business Enterprises No. 36 - Related Party Disclosures" is not detailed enough, only the provisions of the nature and type of related party transactions, pricing policy does not provide for related party transactions, the basic factors determining the policies, pricing, pricing comparable with the market price, the disclosure of listed companies on the pricing policy is highly irregular. Involves significant related party transactions, pricing policies and principles only phrase with, even the non-disclosure of these elements, people have to doubt the fairness of their transactions.
2.3 the listed company whitewash results motivated
Some listed companies use non-fair related transactions false sales to achieve revenue growth or cost reduction, in order to achieve the purpose of manipulating profits, thereby misleading the majority of investors, listed companies "misappropriating". Some listed companies due to poor management led to the loss, to avoid becoming the "ST" or "PT" often through non-fair related trading losses will adjust for profit. Reasonable tax avoidance "non-fair related party transactions of some listed companies, they often buy materials from associated companies with a very high price, and then sold to related parties in the low price, the use of different businesses and local tax rates and exemption conditions differences profit transferred to the low tax rates or exemptions related enterprises, the profits being transferred to loss-making enterprises, in order to achieve the Group's tax burden is minimized. In addition, the stock full circulation after consecutive losses of listed companies more motivated non-fair related party transactions. "Securities Act" stipulates: "listed companies for three consecutive years of losses, on the suspension of its listing by the stock exchange is still losing half of annual report disclosure, terminate its listing." Once listed companies delisting, the largest shareholder not only lost refinancing opportunities, and the shares held by its theoretical value of the loss is huge. In order to avoid being delisted from the consecutive losses of listed companies, major shareholders will do everything possible through non-fair related transactions to whitewash the performance of listed companies. In addition, the China Securities Regulatory Commission listed companies "for three consecutive years earnings, more than 10% of the average ROE for three consecutive years, the annual return on net assets shall not be less than 6% mandatory allotment qualified listed companies tend to choose non-fair related party transactions, earnings adjusted to allotment lifeline "to get eligible for allotment. 3 governance of listed companies of non-fair related transactions countermeasures

3.1 to optimize corporate governance structure
This is the key to fundamental governance of non-fair related party transactions. China's listed companies options too concentrated, shareholder equity, should be appropriately dispersed to reduce the phenomenon of "dominance". But equity too scattered may lead to the company's decision-making efficiency, high cost of shareholder oversight. So, under the conditions of ownership concentration, bridging the gap between large shareholders and minority shareholders, nurture institutional investors diversified market players, better constraints of the major shareholders of listed companies. The same time, it is necessary to improve the system of independent directors of listed companies, by independent directors on behalf of the interests of minority shareholders, the checks and balances of the controlling shareholder, and to express their views on related party transactions and related party transactions to enhance internal constraints. Employed by the independent directors should have a certain degree of experience in management and related legal, accounting knowledge and good moral character. Should be avoided in order to maintain the independence of the independent directors, the directors remuneration linked to the performance of the company, in order to better exercise their oversight role.
3.2 improve the disclosure of related party transactions laws and regulations
This is the fundamental guarantee to curb the proliferation of non-fair related party transactions. First, the affiliated companies should be fully incorporated into the Companies Act system through the associated enterprises special chapter legislation to regulate related party transactions. Second, current accounting standards for related party transactions pricing policies to make more specific specifications in reference to international accounting standards, to fully consider the characteristics of China's listed companies on the basis of the further refinement of the disclosure of pricing policies, regulations to specific types of pricing methods and applicable range. The associated transaction pricing internationally recognized resale price method, the cost plus method and uncontrolled three comparable price method. Disclosure of the pricing policy, we can not only generally requires the disclosure of its content, but also to require listed companies to disclose related party transactions pricing decision-making procedures, methods, costs, pricing of related party transactions and the fair market value of the differences and the cause of this difference, described the possible impact of the difference on the enterprise's financial position, operating results, and provide a statement issued by the independent financial adviser to the related party transaction is fair. Finally, new situations and new problems, accounting standards and the system has been developed according to the related party transactions of listed companies in a timely manner, replenish and perfect and certain forward-looking guidance, in order to minimize and avoid non-fair related the transaction occurred.
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