Research On The Impact Of Ultimate Controlling Shareholders On The Investment Behavior Of China’s Listed Companies

In China’s particular economic environment, due to the late start of capital markets and the imperfection of market mechanisms, the abnormal investment phenomenon of listed companies is common. Overall, in our country overinvestment and underinvestment of listed companies coexists, thus investment inefficiency has become a serious problem. The investment efficiency is not only related to the companies’ own development, but also has a significant impact on the allocation efficiency of social resources. Besides, due to the high degree of equity concentration and the imperfect corporate governance, investment decisions are always controlled by major shareholders. In this context, it is full of theoretical and practical significance to study the impact that major shareholders have on the investment behavior from the perspective of ultimate controlling shareholder.This paper mainly discusses the difference of corporate investment behavior because of different ultimate controlling shareholders, in the framework of the study of investment-cash flow sensitivity, based on the financing constraints theory and the overinvestment of free cash flow theory. There are two main issues to be addressed in this paper. The first one is the impact of the ultimate controlling shareholders’nature on the corporate investment behavior. This paper discusses whether the investment-cash flow sensitivity is different between the state-owned companies and the private companies. Then this paper discusses what impact the divergence between control rights and cash flow rights has on the corporate investment behavior, based on the agency problem between controlling shareholder and minority shareholder.According to the conclusion of the theoretical analysis and empirical study of this paper, the investment behavior of state-owned companies is significantly different from private companies. The investment-cash flow sensitivity is linear for private companies, while it is nonlinear for state-owned enterprises. For the state-owned enterprises, the relationship between investment and cash flow is positive when the cash flow is positive, but it is negative when the cash flow is negative. Besides, the divergence of control rights from cash flow rights has impact on the investment of private companies. By the contrast, there is no relationship between corporate investment and the divergence for the state-owned companies.