Ownership Structure, Stakeholder Conduct And Agency Cost

As the most important element of corporate governance microstructure, ownership structure has always been the focus of the academe. The various damages to the interests of outside investors' incurred by insiders misappropriations of companies' assets make ownership structure and protection for outside investors' interests the core issue of corporate governance. The special situation resulting from the particular regime of China provides an ideal ground to enrich the study in this area. Along the route of "ownership structure-stakeholder conduct-agency cost", this thesis has systematically examined different ownership structures of companies listed on exchanges of China and analyzed their principal stakeholders' corresponding conducts respectively. Based on these, we proposed some hypotheses about agency costs under different ownership structures in China listed companies and test them using the empirical data. The result of our research shows that although the concentration of ownership is declining through IPO, SEO and M&A and more and more privately controlled listed companies occur, the high concentration of ownership still prevails in the market in general and state controlled listed companies are the biggest part of the pie so far. The ownership structure of China listed companies has strong entrenchment effects. The ownership concentration of state controlled listed companies is higher than that of privately controlled listed companies, and the control structure of privately controlled listed companies is more complicated than that of state controlled listed companies. The theoretical analysis and the empirical study reveal that large shareholders can supervise management effectively, and monopoly ownership structure has significant advantage over the other of ownership structures in decreasing the conflict of interest between the management and the shareholder. The agency cost of the management in state controlled listed companies is lower than that in privately controlled listed companies. In companies with high ownership concentration, collusion may exists between creditors and controlling shareholders, and this may be one of the reasons of the lower level conflict of interest between them. In the present legal environment of China, controlling shareholders of privately controlled listed companies have stronger incentives to expropriate outsider investors than those of state controlled listed companies. This explains distinguishing higher agency cost in these companies, especially in those privately controlled listed companies going public by buyout of shell companies. So both the conflict of interests between creditors and shareholders and the conflict of interests between the controlling shareholders and the minority shareholders are more intense in privately controlled listed companies (specially those going public by buyout of shell companies) than that in state controlled listed companies. The controlling shareholders in China listed companies usually snatch the private benefits through manipulating affiliated transactions, SEO and dividend policies. There exists a direct relationship between controlling shareholders' private benefits and the degree of separation of cash flow ownership from right of control, whereas controlling shareholders' private benefits has a negative relationship with the level of cash flow ownership. Oligopoly shareholders cannot hold back the conflict of interest between the large shareholders and the minority shareholders. The ownership balance does not put a stop on the agency problem. On the contrary, the agency costs increase with the rise of rate of ownership balance, which is the total shares of the second and third largest shareholders divided by the shares of the largest shareholder. The study of this thesis reveals that both LLSV's model and Berle and Means's model should be followed when we study corporate governance based on ownership structures of China listed companies.