State shares and legal person shares were not freely traded on the stock exchanges before the non-tradable share reform starting from 2005. Even after the reform, transfer of state shares and state legal person shares still requires approval from relevant authorities. Which of the following problems is least likely arising from the low transferability of stocks?Single choice

Stock prices do not serve the function of rewarding good and disciplining poor performance. When a firm performs well, the controlling shareholders, who typically own non-floating shares, cannot benefit by selling their shareholdings to the public market. When the firm performs poorly, potential acquirers cannot take over the company by open market purchases, because the majority of shares are in the hands of the state and legal persons.

Because the supply of floating shares is limited, their prices are highly inflated. Most of shares initially offered are oversubscribed several hundred times. The high demand for shares is also reflected in the unreasonably high P/E ratios, which averaged 34.18 in 1998, gradually climbed to 58.21 in 2000, and leveled off to the mid-30's afterwards.

Since non-floating shareholders (typically controlling shareholders) cannot benefit from the capital gain by trading in the capital market, they have strong incentives to siphon off assets from listed companies by inter-corporate loans and other related party transactions.

Since non-floating shareholders (typically controlling shareholders) cannot benefit from the capital gain by trading in the capital market, they have less incentives to make R&D expenditures to promote corporate innovation.