Research On The Effect Of Ultimate Controlling Ownership On Corporate Behavior And Firm Performance

With the establishment of modern enterprise system, the research of corporate governance and its theory and practice has gradually become an important factor to improve modern enterprise system, increase corporate performance and drive society development. The logic of corporate governance research has experienced different development processes, such as, the principal agent relation between managers and shareholders, the principal agent relation between controlling and minority shareholders, interior and exterior corporate governance, stakeholder theory, corporate social responsibility and so on. During the research of corporate governance, corporate ownership structure and its influence on governance structure have always been the focus and difficulty of the research in this area. The ownership structure of companies has played a critical role to increase corporate performance and value, perfect corporate governance structure, protect investors’interest and improve capital market. The concept of ultimate control rights proposed by La Porta et al.(1999) provided a crucial boost for the research of ownership structure, also, from the perspective of ultimate controlling shareholders in listed companies, the research of the relationship between ownership structure and corporate governance, has been a hotspot in recent years. Meanwhile, the completion of split-share reform has great impact on the ownership structure of listed companies, the behavior of controlling shareholders and listed companies, the performance and value of companies, and the protection of investors. Therefore, analyzed from the ultimate control rights level, the type of ownership structure and its effect on corporate value and behavior, would have great theoretical and practical significance to enhance the level of corporate governance and perfect capital market.Split-share reform is essentially to change unreasonable ownership structure under the condition of split-share. There are three types of ownership structure exist in China’s listed companies simultaneously:controlling shareholder ownership structure, multi-large shareholder ownership structure, dispersed ownership structure, which would have different effects on corporate value and behavior (investment, financing, dividend distribution). The influence of split-share reform on three types of ownership structure, and the influence of these three types on corporate value and behavior before and after the reform become the emphasis of our study. This paper is divided into four parts to study the influence of different types of ownership structure on corporate value and behavior before and after the share reform.(1) The influence of different ownership structures on corporate investment behavior. The research found that:under controlling shareholder ownership structure, listed state-owned companies are more likely to appear the behavior of overinvestment; while overinvestment behavior of listed state-owned companies is not significant with non-controlling shareholder ownership structure. Under controlling shareholder ownership structure, companies’overinvestment behavior and the control rights of ultimate controlling shareholders present inverted-U-shape relation; under multi-large shareholder ownership structure, overinvestment is positively correlated with ultimate control rights. Under controlling shareholder and multi-large shareholder ownership structure, liabilities is negatively correlated with listed companies’overinvestment behavior, liability could reduce companies’ overinvestment; while under dispersed ownership structure, liability is not related to overinvestment. Overall, pyramid level of listed companies and overinvestment is the relation of inverted-U-shape(2) The influence of different ownership structures on corporate financing behavior. This paper studied that under different ownership structures, listed companies’ financing difference before and after share reform. We found that, after the reform, debt to asset ratio and short-term debt ratio in listed companies declined but long-term debt level increased. Compared with listed companies of multi-large shareholders and dispersed ownership, companies with controlling shareholder ownership structure own more significant behavior of debt financing, and under controlling shareholder ownership structure, listed state-owned companies in our country have low long-term and short-term debt level.(3) The influence of different ownership structures on dividend distribution of companies. Though the finding, under the environment of full circulation, and compared with listed companies with controlling shareholder ownership structure, a company of multi-large shareholders and dispersed ownership tend to distribute more cash dividend. To further compare these three ownership structure before and after share reform, we found that cash dividend distribution after the reform is lower than that before the reform, but the change range of controlling shareholder ownership structure is bigger. Different nature of ultimate controller would influence the distribution of cash dividend:under the ownership structure of absolute holding, listed state-owned companies would pay more cash dividends than non-state-owned companies, but local government, as ultimate controller, would pay more than central government. Under dispersed ownership structure, professional managers as a listed company’s manger would pay less cash dividends than shareholders as the company’s manager.(4) The influence of different ownership structures on corporate performance. We found that different ownership structures before and after share reform have a significant effect on corporate performance. Specifically, relative to dispersed ownership structure, controlling shareholder and multi-large shareholder ownership structure help to increase corporate performance, and the conclusion before and after the reform are consistent. This paper made regression analysis of the effect of three types of ownership structure after the reform on corporate performance respectively, the result shows that:the shareholding ratio of ultimate controlling shareholders (the highest shareholding ratio under dispersed ownership structure), is positively related to corporate performance only in the company with controlling shareholder ownership structure; compared with controlling shareholder and multi-large shareholder ownership structure, dispersed ownership structure has a negative correlation with corporate performance; relative to other ownership structures, the influence of controlling shareholder and multi-large shareholder ownership structure on corporate performance are both positive; under different ownership structures, control level has no significant influence on corporate performance.