Analysis of the Mechanism of Major Shareholder Share Reductions' Impact on Listed Companies' Valuation — A Case Study of Lanfeng Biochemical

Based on authoritative materials and market data obtained, I will systematically interpret the impact mechanism of major shareholder share reductions on listed companies’ valuation from a professional financial analysis perspective, and conduct an in-depth analysis with Lanfeng Biochemical as a case study.

Essentially, major shareholder share reduction is an important signal transmission channel for information asymmetry between insiders and external investors. According to academic research and market empirical evidence [1], as company insiders, major shareholders possess private information about the company’s actual operating status and future development prospects, and their share reduction decisions will convey the following signals to the market:

1. Overvaluation Signal
   : Major shareholders believe the current stock price has fully reflected or even overdrawn the company’s value, so they choose to cash out at a high level to lock in profits. Research shows that the cumulative abnormal return (CAR) for major shareholders in the 30 days before share reduction can reach 3.35%, demonstrating their precise market timing ability [2].

2. Lack of Confidence Signal
   : Major shareholders lack confidence in the company’s future development, or foresee that the company will face unfavorable factors. Research confirms that the larger the scale of share reduction, the stronger the negative signal transmitted [3].

3. Interest Demand Signal
   : Major shareholders may coordinate share reductions through information manipulation (such as releasing positive news, earnings management, etc.) to maximize returns.

1. Utilization of Information Advantage
   : Major shareholders are at the top of the company’s information hierarchy, and their share reduction behaviors are closely linked to their own interests. External investors tend to believe that such signals have high information density and credibility [4].

2. Information Manipulation Behavior
   : Research finds that major shareholders may influence stock prices through positive earnings management, delaying the disclosure of bad news, advancing the disclosure of good news, etc., to create favorable conditions for share reductions [5].

3. Information Disclosure System
   : According to the “Several Provisions on Share Reductions by Major Shareholders, Directors, Supervisors and Senior Executives of Listed Companies”, major shareholders are required to make advance disclosure 15 trading days before share reductions. This system effectively alleviates the information asymmetry problem between internal and external shareholders [6].

1. Increase in Chip Supply
   : Major shareholder share reductions directly increase the supply of tradable shares in the market, creating supply-side pressure on the stock price. Taking Contemporary Amperex Technology (CATL) as an example, its third largest shareholder, Huang Shilin, reduced his 1% stake and cashed out RMB 18.441 billion, triggering a single-day drop of over 4% in the ChiNext Index [7].

2. Liquidity Shock
   : Large-scale share reductions may trigger stop-losses by quantitative funds and leveraged funds, forming a chain reaction of “decline - stop-loss - further decline”.

3. Impact on Market Sentiment
   : Share reduction announcements often trigger panic selling in the market, and the impact is more significant especially in a bear market environment.

1. Changes in Equity Structure
   : Major shareholder share reductions may lead to changes in the equity structure, affecting the stability of corporate governance.

2. Expectation of Interest Expropriation
   : Some studies link major shareholder share reductions to “tunneling behavior”, believing that share reductions may be accompanied by interest transfer [8].

3. Changes in Management Incentives
   : Share reductions may lead to a decline in the alignment of interests between management and shareholders, affecting the company’s operating motivation.

According to research reports and empirical data from the Shanghai Stock Exchange [9]:

Note: *p<0.1, **p<0.05, ***p<0.01

1. The stock price will be strongly negatively affected on the day the share reduction announcement is disclosed, with the excess decline accounting for approximately 2/3 of the CAR during the entire disclosure period
2. The market response is rapid and persistent, with CAR continuing to decline within 14 trading days
3. On average, share reduction announcements trigger a short-term stock price decline of approximately 3.8% [10]

Empirical research shows [11]:

• Share reduction ratio 5%-8% range
  : The best performance, with over 65% of samples showing positive abnormal returns 1-2 months after the share reduction announcement, with an average abnormal return of 139.85%
• Share reduction ratio <5%
  : Abnormal returns are not obvious, and some samples even show negative returns (-82.74%)
• Share reduction ratio >8%
  : Although major shareholders have stronger incentives to push up the stock price, the market capital withdrawal effect is greater, with an average abnormal return of approximately 27.85%

1. Stock Price Position Before Share Reduction
   : The lower the stock price at the start of the share reduction, the more obvious the abnormal returns. Data shows that among samples where the stock price is more than 5% lower than the previous average price, 70% show abnormal returns 1-2 months after the share reduction [12].

2. Company Fundamentals
   : Companies with strong performance can quickly absorb share reduction pressure, while companies with poor performance or overvaluation face greater impacts.

3. Market Environment
   : The impact of share reductions is relatively mild in a bull market, while the shock is more severe in a bear market.

4. Supporting Measures for Share Reductions
   : Positive supporting measures such as high stock dividends and share repurchases can offset part of the share reduction pressure.

According to the company’s announcement on January 20, 2026 [13]:

1. Special Nature of Shares
   : The shares held by Hainan Wenqin were acquired through judicial auction in September 2023. The relevant commitments of the original shareholder Wang Yu have been fulfilled by Hainan Wenqin, and the share lifting restrictions procedures were completed in January 2026 [14].

2. Share Reduction by Non-Controlling Shareholder
   : The announcement clearly states that Hainan Wenqin is not a controlling shareholder or actual controller, and the share reduction will not lead to a change in the company’s control rights.

3. Market Position Assessment
   : Lanfeng Biochemical’s stock price rose from approximately $3.26 in September 2024 to $7.31 in January 2026, an increase of 124.23%, and the current stock price is at a relatively high level in the current stage [15].

Based on the above mechanism analysis and empirical patterns, the following forecasts are made for the stock price impact of Lanfeng Biochemical’s 3% share reduction:

• The stock may see an excess decline of -1.5% to -2.5% on the day the share reduction announcement is disclosed
• The short-term cumulative abnormal return (CAR) is expected to be in the range of -2% to -3%
• The main reaction will be concentrated on the first trading day after the announcement

1. The 3% share reduction ratio is in a moderate range, but close to the lower limit of 5%, so the signal effect is relatively mild
2. The market has fully digested the previous gains, and there is a demand for adjustment
3. Share reductions by major shareholders due to capital needs are usually regarded as a slightly negative signal

• Neutral Scenario (Probability ~50%)
  : The stock price stabilizes after absorbing the share reduction pressure, and may recover lost ground if the company’s fundamentals are good
• Weak Scenario (Probability ~35%)
  : The stock price is under pressure, and the cumulative abnormal return further drops to the range of -5% to -8%
• Strong Scenario (Probability ~15%)
  : A “bad news fully priced in” rebound occurs, and the stock price rises instead of falling

1. Whether the company has subsequent performance positive news or share repurchase plans
2. The discount/premium situation of block trading during the share reduction period
3. Overall market sentiment and sector performance
4. Changes in shareholdings by institutional investors

• After the share reduction, Hainan Wenqin will still hold approximately 3.33% of the shares, and will no longer be a shareholder holding over 5% of the shares
• Changes in the equity structure will not affect the company’s control rights and continuous operation
• If the company’s fundamentals are sound, the long-term valuation will still depend on performance growth

1. Information Asymmetry Risk
   : Major shareholders have more information about the company’s true value, and their share reduction decisions may reflect their judgment on valuation

2. Market Sentiment Risk
   : In the current market environment, the share reduction announcement may be over-interpreted

3. Liquidity Risk
   : If the market’s absorption capacity is insufficient during the share reduction period, it may cause additional pressure on the stock price

1. Treat Rationally
   : Avoid unnecessary losses caused by panic selling, and comprehensively evaluate the company’s fundamentals

2. Focus on Fundamentals
   : Focus on the company’s performance, industry position and future development prospects

3. Track Share Reduction Progress
   : Pay attention to subsequent announcement information such as block trading buyers and share reduction prices

1. Opportunity to Enter After Oversold
   : If the stock price falls excessively due to the share reduction and the company’s fundamentals are good, consider accumulating positions at low prices

2. Signal of Bad News Fully Priced In
   : After the share reduction is completed, if market sentiment stabilizes, pay attention to valuation repair opportunities

3. Opportunity for Chip Concentration
   : If the shares from the reduction are absorbed by institutional investors, it may instead increase the concentration of chips

The impact of major shareholder share reductions on listed companies’ valuation is the result of the combined effect of multiple mechanisms, with the core being the signal transmission effect under information asymmetry. Hainan Wenqin, a shareholder holding over 5% of Lanfeng Biochemical’s shares, plans to reduce its 3% stake. Based on empirical data from the A-Share market and analysis of the company’s specific situation:

1. Short-Term
   : The stock price will likely see a minor decline within 1-2 weeks after the share reduction announcement, with an expected excess decline in the range of 2%-3%
2. Mid-Term
   : Trends will diverge, depending on the company’s fundamentals and market environment, and the cumulative abnormal return may fluctuate in the range of -5% to +5%
3. Long-Term
   : The substantial impact is limited, and the company’s valuation will still return to fundamentals

Investors should treat share reduction events rationally, make investment decisions based on the company’s intrinsic value, and pay close attention to the progress of the share reduction and changes in market reactions.

[1] Shanghai Stock Exchange. Study on the Implementation Effect of the Advance Disclosure Rule for Insider Shareholder Reductions. 2022.

[2] Wu Yuhui, Wu Shinong. Major Shareholder Share Reductions, Information Manipulation and Corporate Governance. Nankai Business Review, 2010.

[3] Khan, Lu. Study on the Market Timing Ability of Major Shareholder Share Reductions. Journal of Financial Economics, 2013.

[4] Shenzhen Stock Exchange. How Share Reductions by Senior Executives Affect Investor Expectations. Securities Market Herald, 2021.

[5] Chen, et al. Study on Information Disclosure Manipulation by Major Shareholders and Share Reduction Returns. 2018.

[6] China Securities Regulatory Commission (CSRC). Several Provisions on Share Reductions by Major Shareholders, Directors, Supervisors and Senior Executives of Listed Companies. 2016.

[7] NetEase Finance. Summary and Analysis of Share Reduction Amounts by Major Shareholders in A-Shares Since the Start of This Year. 2025.

[8] Huang Can. Stock Liquidity in China: A Re-Test Based on Impact Mechanisms. Journal of Management Science, 2023.

[9] Legal Department of Shanghai Stock Exchange. Study on the Implementation Effect of the Advance Disclosure Rule for Insider Shareholder Reductions. Securities Law Review, 2023.

[10] 36Kr. Removing the “Stumbling Block” of the Bull Market — Major Shareholder Share Reductions. 2024.

[11] Phoenix Finance. Is Share Reduction by Shareholders Really a Major Negative for Stock Prices? Four Tactics Used by Major Shareholders in Share Reductions. 2016.

[12] Cai Ning. Study on Information Manipulation and Share Reduction Returns of Major Shareholders. 2012.

[13] CNINFO. Lanfeng Biochemical: Advance Disclosure Announcement on Share Reduction by a Shareholder Holding Over 5% of Shares. Announcement No. 2026-005. January 20, 2026.

[14] Lanfeng Biochemical. Announcement on Receipt of Performance Compensation Payment. Announcement No. 2025-079.

[15] Jinling API Market Data. Historical Price Data of Lanfeng Biochemical (002513.SZ). January 20, 2026.