Large Shareholder Supervision,"Free-rider Problem"and Investor Protection

Large shareholders violating the interest of small shareholders has attracted the attention of the theoretical circle and the business circle.However the attention to the supervision effort of large shareholders is not enough.In fact,large shareholders improve the performance of companies by monitoring the managers.The existing literature holds that PBC is large shareholders violating the benefits of small shareholders,which is against the essence of controlling right.At the same time,the reason for the selfish behavior of large shareholders making use of their controlling right to violate the interest of small shareholders is that the cost of supervision of large shareholders is not compensated due to the free-rider problem of small shareholders.Through theoretical and model analysis the authors hold that reasonable compensation should be given to large shareholders,at the same time the protection of the interest of investors should be reenforced through law and other corporate governance mechanism and large shareholders’ violation of the benefits of small shareholders should be reduced so that the securities market of China may develop healthily.