Effect Of Corporate Layer Setting In M&A On Ultimate Controlling Shareholder’s Financing Capability

When the ultimate controlling shareholder of enterprise groups in the implement the M&A process, either they can control the target enterprise directly to forming the organization morphology of horizontal direction, or they can arrangement lower level corporate in their group to control the target enterprise so as to forming the organization morphology of multi-level. In practice, the emergence and development of complex multi-level form of business organization has been the focus of attention of the theorists. The traditional theory explained corporate layer setting based on the separation of cash flow rights and control rights. To some extent, the point of "Propping and Tunneling" can explain the formation of the layer structure. At present, it is more persuasive to explain the formation of the layer structure from the perspective of the function of the structure like the yield advantage or financing advantage. The leverage effect in corporate layer setting of the ultimate controlling shareholder is that, through the establishment of a multi-level structure, enterprise group can use less resources to control times resources of their own. And thus, this helps to promote the rapid growth of the enterprise group.From the angle of effectively control on resources, based on the leverage effect theory, this article researched the effect of corporate layer setting in M&A on ultimate controlling shareholder’s financing capability. In order to achieve the objectives of the study, this article analyzed along the following lines:First, this article analyzed both positive and negative aspects of the economic functions of the hierarchy and its limitations. Second, this article analyzed the impact of hierarchy setting on the ultimate controlling shareholder’s financing capacity, from the perspective of internal capital market, leverage effect, and corporate governance. Secondly, for the study of ultimate controlling shareholder’s hierarchy setting tactics of Enterprise Group in M&A in order to play hierarchy leverage effect, this paper used mathematical analysis and normative analysis, from the acquirer, target corporate, acquisition-related and system factors to researched the hierarchy setting tactics in M&A transactions. Finally, this article selected76M&A events as samples from the year2007-2009, in which the actual controllers had been changed, used multivariate regression model to perform an empirical study on the level structure’s influence of the ultimate controlling shareholder’s financing capacity and it’s M&A hierarchy setting strategy selection. Combining the results of empirical analysis, this article put forward hierarchy setting policy and recommendations in M&A process for the ultimate controlling shareholder of enterprise group.From the result of the research contents and the novelty at home and abroad, this paper is firstly done a Systematic research on the relative issues on ultimate controlling shareholder’s corporate layer setting in M&A. The notable contents are as following: First, this article improved the theoretical analysis system of the correlation research between hierarchy and corporate finance. The innovations can be subdivided into two aspects:On the one hand, this paper expanded the hierarchy built methods’research from forming new enterprises to M&A transactions, which to some extent, improved the analytical framework of hierarchy setting. On the other hand. Most of the domestic and foreign literature on the hierarchy set and corporate finance issues from the perspective of internal capital market. But in this article, we did some new research on hierarchy setting’s influence on the financing ability of ultimate controlling shareholder from the leverage effect and corporate governance.Second, considering the external environmental factors, we proceed the law that the ultimate controlling shareholder should follow in the hierarchy setting from the perspective of M&A transactions. The paper analyzes the affect factors from the perspective of the following levels:acquiring enterprise, target side, factors of M&A, and the institutional factors. Relevant factors of acquiring enterprise include the size of the acquiring party, the degree of financing constraints, the nature of ownership; factors of target side concerns asset-liability ratio and profitability; factors of M&A includes the following items:size of M&A, correlation of the industries and the payments; the institutional factors are the degree of marketization and investor protection. The hierarchy setting selection strategy from the ultimate controlling shareholder of enterprise groups in the M&A is relatively comprehensive study among the existing literature.Thirdly, the paper firstly make the empirical research using the datus of layer structure, acquiring enterprise and the corporate governance, and draw a series of guidance and meaningful conclusions.