Ultimate Shareholders Controlling,Capital Structure And Creditor Protection

In recent years, it has become a trend of the uninterrupted amalgamation in the field of corporate governance and corporate finance research. With the deepening of corporate governance research, it supports a new perspective and to reveal the choice of the company’s capital structure. Based on the results of relevant researches at home and abroad, and combined with the survival of the institutional background in private listed companies (PLC) in China, the purpose of this study was to investigate the theoretical analysis and empirical research for the ultimate shareholders controlling (USC), capital structure and the protection of the interests of creditors. The results revealed the selection mechanism for the capital structure of PLC under the control of the USC, improved the understanding of the choice of capital structure behavior under the control of USC from investors and corporate stakeholders, and enriched empirical research of the relationship between corporate governance and capital structure.The major findings were as follows,(1) The controlling ability of USC was negatively related to capital structure, and the divergences of controlling rights and cash flow rights (DCAC) were positively related to capital structure. This implies that the controlling rights entrenchment and tunneling simultaneously exist in PLC in China. Moreover, it also found that the corporate governance variables, such as the ownership restriction ratio and board independence, were positively related to capital structure, which means that larger shareholders and independent director prefer to choose higher leverage in order to govern the behaviors of USC. The extent of legal protection of investors was a negative correlation with capital structure. It means that in areas with better investor protection, reduce the cost of equity financing, which allows companies to use more equity capital.(2) The sensitivity of DCAC to capital structure was weakened by high control rights. And the effect of DC AC to capital structure was more sensitive in the low control rights. Under the low DCAC, the sensitivity of control rights to capital structure was more significant than that of the high DCAC. These suggest that the controlling rights entrenchment and tunneling (CRET) have the interaction on the sensitivity to capital structure. In the different cases of the control rights and DCAC, the primary reason of the differences in capital structure was favored by the different sensitivity of the CRET to capital structure. Further research found that there has a higher debt ratio in PLC which has low control rights and high DCAC.(3) The higher the ratio of interest-bearing debt for PLC, the worse the extent of capital occupation for the next period, and the greater the cash flow rights of the USC, the lower the extent of capital occupation. Moreover, this phenomenon was more serious at PLC which was under the control of the pyramid structures. These demonstrated that debt resources of PLC in China were really contributed to providing the resources which can be available to hollow out for the interests of ultimate shareholders and related parties (USRP). And the cash flow rights of the USC played a role to ease the interests of occupation. In addition, the pyramid structures supplied a more subtle channel which was used to empty the resources of PLC to the USRP. Therefore, to solve the existing problem of debt resources occupation, it is critical to strengthen creditors in corporate governance as a positive role, to optimize shareholder structure and improve the level of legal protection for investors.(4) The bank interest-bearing liabilities and capital occupied had a significant positive correlation, non-bank interest-bearing liabilities (bonds) and captical occupation were not relevant. In addition, the relationship of commercial credit and capital occupation was investigated and found that there was no significant correlation. This reveals that the USRP mainly embezzled the interests of bank creditor from the PLC in our country, and holders of corporate bonds or providers of the commercial credit are not the main target of occupation. The results explained the reason of "sparing loan" which often was discussed by the insider and and theorists, namely because of the more serious acts against the bank creditors. The studies also supported the banking and other financial institutions prudent lending to private enterprises. (5) The complexity of pyramid structure is positively related to the rate of all non-bank debt as well as the rate of short term non-bank debt. This means that the PLC tends to use the non-bank debt from the internal capital market when the pyramid structure becomes more and more complex. The conclusion offers a reasonable explanation about PLC under the control of the broad pyramidal ownership structure based on the perspective of "the financing substitution effects of internal capital market".Main contributions of this study were as follows,(1) The present work evaluated the effect of the controlling rights entrenchment and tunneling on the choice of captital structure of the PLC. It revealed that the impact of corporate governance is a major factor in the capital structure, and showed that the empirical evidence of how the motivation of USC affects the choice of capital structure.(2) The interaction of the motivation of CRET on captital structure of the PLC was distinguished, and revealed that the effect of the motivation of CRET on captital structure was different under the different cases of control.(3) The study contributed the empirical evidence of debt capital for the USRP and confirmed the benefits transfer behavior in the existence of a debt financing, especially supported the evidence for the bank interest-bearing liabilities and capital occupied. This study devoted the empirical informations to the protection of the interests of creditors, but also from another point of view explained the reasons of "sparing loan" favoring by banks and other financial institutions to private enterprises.(4) This study revealed the the pyramid structure using by the USC has the function of internal capital markets, and contribute a substitution effect of the empirical evidence to a pyramid structure of holding internal capital markets, and also answered the wide existience of the pyramid structure from the view of the "benefit supporting" in the control of the USC.