Study On The Private Benefits Of Control Of China's Listed Companies

The traditional corporate governance theory is based on dispersedownership and relationship of the owners with managers—entrusted withthe agency relationship. However the dispersed ownership is notuniversal phenomenon, the shares of the listed companies in mostcountries and regions including China are not dispersed but quiteconcentrated. In the companies with quite concentrated ownership, themain agency issue is no longer the conflict between shareholders andmanagers, but that between controling holders and minority shareholders.The core of agency is that the controling holders occupy the interest ofminority shareholders and uptake the private benefits of control bytunnelling. Especially in emerging markets, the conflicts of interest isparticularly serious, due to the unsound system for protection, of smallshareholders.The paper has, at the same time from the two dimensions of systemenvironment and control rights structures, made a systematic theory analysis and positive test on the private benefits of control of the listedcompanies in China. The main work and conclusions of the research areas follows: (1) By using the theory and method of new system economicsto analyse the changing system, the paper has made detailed expositionson the constant changing system environment in China and itsrelationship with the private benefits of control of the listed companiesand put forward the view of "unity of opposites", namely corporategovernance should emphasize the external system of social justice andinternal system of efficiency. And from the three dimensions such asexternal system and general corporate governance, internal system andremaining corporate governance and fiduciary duty treatment, the paperhas established a new theoretical analysis framework system. Thisanalytic framework can explain various Contradictions and problemsarisen from corporate governance, including the spread of private benefitsof control.(2)By using mathematical mode, the paper analysed theformation mechanism and motivation of private benefits of control,verified the relations of degree of legal protection of investors and privatebenefits of control: with theoretical and empirical methods, the paperanalysed the relations of the isolation of control rights from cash flowrights and private benefits of control, and the author believes that theprivate benefits of control stems from the inconsistance of controlingshareholders and benefits of listed companies while the isolation of control rights from cash flow rights enlarged the inconsistance. (3) Thepaper made a comparative analysis on various tunnelling of occupyingprivate benefits of control in different system environment and-the authorbelieves that in the countries of mature markets, tunnelling is more oftenreflected as individual acts of self-occupation, outside the legal provisions,but in the countries of emerging markets, they are more often reflected ascommon and direct or occupation acts of fraud, which are more harmful.(4) With view from the merger motives, the paper studied private benefitsof control. By utilizing typical case and regression analysis, the papermade a study on the motivation of shifting control of the listed companiesin our country. The author discovered the merging samples were ofremarkable motivation of obtaining private benefits of control in2001—2004, while in merging samples of 2005, he discovered that thereforms such as non-tradable share reform and company law amendmenthave remarkable impacts on merging motivation.(5) From the perspectiveof characteristics of control rights, the paper made a study on the privatebenefits of control. By using empirical analysis, the study found that withincrease of control rights, the performance of the company shows thenonlinear relationship "expropriation—alignment—entrenchment". Thisconclusion is contrary to the test results of the western capitalist marketsmade by the western scholars, but compared with the test result ofcapitalist markets in Hongkong, they are of similar patterns, while alignment interval distribution have big differences. The paper interpretesthe conclusion as follows: similar relationship form indicates the similarculture of the two markets leading to similar corporate behavior, whiledifferent alignment intervals means the gap between the two regions'system and environment. This further certifies that the study on China'scorporate governance cannot be isolated from the preposition of China'sparticular system environment. Finally the paper put forward policysuggestions on management on private benefits of control such aspushing the overall listing, regulatory changes thinking, improvinginformation disclosure, strengthening the integrity mechanisms and so on.The main innovations or new discoveries of the paper include: (1)theoretically, from the three dimensions such as external system andgeneral corporate governance, internal systems and the remainingcorporate governance and honesty governance obligations, the paperestablished a new system of analysing corporate governance frameworksystem. (2)empirically, firstly the author verified that the mergeringsample of 2001—2004 had the motives to acquire private benefits ofcontrol, while in 2005, the merging and acquisition samples were foundwith a feature of significant departure from 2001--2004; secondly, theauthor discovered the relationship of control rights with the performanceof the company "expropriation—alignment—entrenchment" and specifically determined the entrenchment intervals (digging trenches) ofthe control rights. (3)in the method of confirming the controllingshareholders, control rights and cash flow rights, this paper did not usethe simple data of the first major shareholder, but through the layers ofchain retrospection, the author identified and mergered the ultimatecontrolling stockholders and concerted action people of the listedcompanies. Each chain to control the smallest number of holdings updemands control rights; the total product of each control chain's holdingequals to cash flow rights. Through premium, identifying andcalculating, the author has obtained valuable data of the actual controllingshareholders, the controlling rights and Cash flow rights of the listedcompanies.