Pyramidal Ownership And Expropriation Of Minority Shareholders Of China's Listed Corporations

Under the framework of corporate pyramids, this thesis studies the expropriation of minority shareholders by the ultimate controllers of China's listed corporations theoretically and empirically, casting light on the exterior conditions and interior reasons for corporate pyramids and probing into the possible methods of the expropriation and empirical evidences by China's listed corporations' data-base. Meanwhile it also investigates whether it is possible for the foreign shareholding listed corporations to improve their minority shareholders' interests effectively. Finally, the thesis tries to put forward relative policy suggestions on the basis of the conclusions derived from the theory and empirical study.The thesis offers an integrative analysis framework to explore the expropriation mentioned above, and lists to what degree can law protects the investors' interest as an important variable to influence the final belonging of control right in the listed corporation. The large shareholders would obtain more control power with relatively low cost in the pyramid framework when the effect of legal protection is relatively weak, which leads to the widely spreading of the pyramid framework in developing countries including China. The typical characteristic of pyramidal ownership structure is the inequality between cash-flow right and control right to the ultimate controllers, which means the right is not equal to the responsibility and brings on the expropriation motivation of the ultimate controllers. What's more, the pyramidal ownership structure can hide the identity of the ultimate controllers and provide the convenient channels for "tunneling" the resources of the listed corporations, which makes it possible for the expropriation of minority shareholders' interest.The thesis analyzes possible ways of expropriation from three aspects ("tunneling", cash dividends and excess debt), and investigates possible concrete evidences over the listed corporations ultimately controlled by the private and government in China. To the ultimate controllers, the most typical expropriation is "tunneling', which transfers assets and other resources from low cash-flow rights corporations to high firms, or to his personal account directly by setting unfair terms. Control rights to the public listed corporations can help this expropriation, but higher the cash-flow right is, the higher the cost of ultimate controllers of "tunneling" will be, which is supported by the empirical analysis relaying on the government and private control listed corporations.Cash dividends are one kind of benefits to minority shareholders, whereas it is often not the main resource while still it plays the role of signal to some degree and offers evidence for the opinion in this paper. The rapid liquidity of cash leads to be easier transferred and expropriated, and makes it to be the extremely preferred resources by the ultimate controllers. But the long-time low cash dividends policy undoubtedly gives the market an evident expropriation signal, which results in high market costs of expropriation. So cash dividends policy should be the result of the ultimate controllers' consideration over both expropriation benefits and market costs. The empirical analysis based on the listed firms ultimately controlled by private and government indicates that to the government ultimate control corporations, a lower cash/control is associated with significantly lower dividend rates, but this correlation is not found to those private ultimate control corporations. The reason I think is that the private ultimate controllers are more sensitive to market than government in China.The final method that analyzed in the thesis is excess debt-ration. Debt can enlarge the corporations' scale and provide more assets that can be expropriated by the ultimate controllers. So the debt of corporations may not be for running, but for expropriation by the ultimate controllers in pyramidal listed firms, which undoubtedly would induce high debt risk. When analyze debt-ration, we certainly must take principle-agent relationship between controllers and creditors into consideration, for the debts are under the permission of the creditors after all. To the private ultimate control corporations, the empirical analysis can support the conclusion: a lower cash/control ration is associated with significantly higher debt risk, but the same correlation can not be found to the government ultimate control corporations. The reason in my opinion is that the reform of national commercial banks especially based on new bad-loan ration leads to the significant increase of the listed firms' budget constraint, and the poor performance of government ultimate control corporations rooted from the out-time management mechanism is still not eradicated. Even it has been listed, the bureaucratic working style,weak competitive ability and low effect would result in commercial banks' " cherishing the loan" to national listed corporations, which further makes it hard for the ultimate controllers to expropriate through excess debt.In a word, the most direct variable to denote minority shareholders benefits is corporate value calculated by Tobin's Q in the thesis. The analysis of corporate value can provide the most essential exposition for all possible ways adopted by the ultimate controller in expropriation. For in an effective stock market (even partly effective), the expropriation by the ultimate controllers must lead to the decrease of corporation market value, no matter which method the ultimate controllers adopt. To both private and government ultimate control corporations, the empirical analysis can support above conclusion: a low cash/control is associated with significantly low market value.We always intend to hold that foreign shareholders can promote our corporate governance, is it true? As the speeding up of the stock market's opening up, this question should be given a reasonable answer. The thesis also comprises the foreign shareholders in the analysis framework, the result indicates that foreign shareholders can help restrict the expropriation by the ultimate controllers, increase corporate value and protect minority benefits. But the effect is more evident to the private ultimate control corporations than to the government.Finally, the thesis presents three policy suggestions to regulate the stock market that are closely to the theory and empirical results. The suggestions include: sheer and strict information releasing, severe and fulfilled legal protection of minority shareholder, and orderly opening stock market step by step.