Research On The Decision Rights Allocation Mode Of Parent-Subsidiary Corporation Under Group Management And Control

The management and control issues of enterprise group that is the mainstream organization form under the market background of the "emerging and transition" have been widely concerned.The foundation of enterprise group development is the parent-subsidiary corporations.Under the parent-subsidiary system of the group,the fact that the parent company and the subsidiary company are legal persons restricts the parent company from directly commanding and organizing the subsidiary company.Therefore,the parent company must control and manage the subsidiary to coordinate the internal group of increasingly complex contractual relationships,which ensures the effective allocation of resources within the group and the high-quality development of the group company.Group management control aims to weigh the power,interests and responsibilities of the parent company and its subsidiaries,and appropriately handle the relationship between centralization and decentralization between parent and subsidiary companies.Parent-subsidiary management control is a decision rights allocation problem in essence.Although China’s capital market is improving day by day,the parent company of the group uses a pyramid structure and over-appointment directors to grasp the remaining control rights with fewer residual claims,and then hollows out listed subsidiaries through the ways of connected transactions,capital embezzlement,loan guarantees and so on.The phenomenon of encroaching on the interests of minority shareholders still occurs frequently.The controlling shareholder of*ST Oriental Ocean(002086)is Oriental Ocean Group has encroached 1.1 billion yuan and cannot be resolved.There are endless cases.However,the "Bao-Wan Controversy" in 2015 has marked the advent of the "Era of Decentralized Equity" in capital market of China.The decline in parent company’s shareholding ratio provides conditions for listed subsidiaries to obtain power to check and balance the parent company.A typical case is the "infighting" incident between Zhuhai Yinlong’s major shareholder and the second shareholder which provides a new perspective for academic research.On the premise of respecting the independent legal person of the subsidiary,the group company realizes the indirect management and control of the subsidiary by assigning the decision rights to the subsidiary through the subsidiary governance which is the subsidiary shareholder meeting,the board of directors and the management.The board of directors of the subsidiary has control and decision rights,so the appointment of directors has become an important measure for the parent company to strengthen decision rights control and achieve synergy.From a realistic perspective,the principal-agent chain between the parent and subsidiary companies of the group is very long,and the parent company is very likely to still become the master of residual control in the context of a lower residual claim.However,the subsidiary attracts institutional investors and other minority investors as a listed company.Meanwhile it needs to maintain a corresponding degree of residual control and autonomy to ensure that the interests of other investors are not harmed by daily operations and strategic decisions.The control decision rights controlled by the board of directors is the residual control power.Whether the residual control power and the residual claim power correspond to each other forms the decision rights allocation mode that is an important factor to improve decision rights management,governance efficiency and company value which provides an opportunity for me to study the allocation of decision rights of parent and subsidiary companies.Then,what are the modes of allocation of decision rights between parent and subsidiary companies under the group management and control system?Will different modes of decision rights allocation contribute to increasing the value of subsidiary and promoting the development of the group?What are the mechanisms and paths?Is there a corresponding internal and external governance mechanism of the group that can alleviate and revise the negative impact of improper allocation of decision rights on the value of subsidiaries?What factors are driving the parent company to adopt an appropriate decision rights allocation mode to its subsidiaries?It can be said that answering the above questions has become an important issue to be solved urgently in practice and theoretical research.The theory of rent dissipation theory holds that the improper arrangement of property rights makes the valuable resources use inadequately,results in loss of economic resources,inefficiency and value dissipation.In micro enterprises,the incomplete property rights reflect that the residual control rights dose not match the residual claim rights.Therefore,based on the analysis framework of the theory of rent dissipation that is decomposed into the cause level and the effect level,this paper identifies decision rights allocation mode under the control of the group including parent-subsidiary synergy allocation mode,parent dominant allocation mode and subsidiary dominant allocation mode.On the basis of this,the paper extends the cause level to the effect level to investigate the impact of company value,and empirically tests related hypotheses.At the same time,it discusses the internal and external governance mechanisms that can alleviate the erosion of the company’s value by the parent dominant allocation mode and the subsidiary dominant allocation mode as well as the selection mechanism of the parent-subsidiary synergy allocation mode based on residual claim that is one factor of the cause level.Through the above research,this paper has obtained the following main conclusions:Firstly,the parent-subsidiary synergy allocation mode is conducive to increasing the value of the subsidiary,while the parent dominant allocation mode and subsidiary dominant allocation mode reduce the value of the subsidiary.In the robustness test,the paper uses the Heckman two-stage mode,PSM,and the method of replacing variables to retest,and draws the conclusions that are still valid.Further examination of the mechanism found that the parent-subsidiary synergy allocation mode is conducive to reducing the group’s internal related transactions,improving the investment efficiency of the subsidiaries;the parent dominant allocation mode and the subsidiary dominant allocation mode aggravate related party transactions in group and worsen investment efficiency.Accordingly,they reduce the value of subsidiaries.Secondly,the internal and external governance mechanisms help alleviate the erosioneffect of the parent dominant allocation mode and the subsidiary dominant allocation mode on the company’s value.As an internal governance mechanism,the residual claim rights of the parent and subsidiary can restrain the damage of the parent company dominant allocation and the subsidiary dominant allocation mode to the company’s value.Under the parent dominant allocation mode,institutional investors’ shareholding plays a"collusive" role,which intensifies the dissipative effect on the company’s value,while thesubsidiary dominant allocation mode can supervise the management of subsidiaries and thus help improve the company.value.In addition,the institutional environment and external audit supervision as an external governance mechanism can effectively reduce the infringement of the parent dominant allocation mode and the subsidiary dominant allocation mode on the company’s value.Moreover,it is found that the internal and external governance mechanism presents a stronger mitigation effect in non-state-owned enterprises after distinguishing the heterogeneity of property rights.Thirdly,the regression results based on the selection mechanism of the parent-subsidiary synergy allocation mode on the residual claim show that the parent company’s residual claim right is not conducive to the parent company’s choice of the synergy allocation mode.The residual claim rights of other large shareholders,subsidiary management and independent director ratio help the parent company adopt the synergy allocation mode for subsidiary.The absolute controlling position of the parent company weakens the residual claim rights of other large shareholders and subsidiary management to promote the value.For parent companies that are not state-owned enterprises,the increase in the shareholding ratio of other large shareholders and subsidiary management has a stronger role in promoting the synergy allocation mode,while the residual claim rights of the parent company intensify the restraining effect on the synergy allocation mode.The possible innovations and contributions of this paper are reflected in the following three aspects:Firstly,this paper expands the research perspective of the decision rights allocation mode of parent-subsidiary companies under group management and control.Most studies on the allocation mode of decision rights has focused on the discussion of autonomy from the perspective of management in the past,ignoring that the allocation of decision rights between parent and subsidiary was achieved through subsidiary governance.Research from the perspective of governance and control decision rights is rare.Under the analysis framework of the theory of rent dissipation,this paper includes the governance of parent and subsidiary companies in the research framework.From the perspective of whether the residual control rights matches residual claim rights or not,the research on the allocation mode of parent-subsidiary decision rights under group control is carried out.With the description of the current situation of the three types of decision rights allocation modes in China,this paper makes the research on the parent-subsidiary corporation decision rights allocation modes more comprehensive and enriched.It is a useful supplement to the related research of decision rights allocation and group management practice requirements that lags behind,and provides for group management and control practices guidance.Secondly,based on the core ideas of the theory of rent dissipation,a logical framework applied to the study of the decision rights allocation mode of parent-subsidiary corporation is proposed.The analysis framework of the theory of rent dissipation is decomposed into the cause level and the effect level.Whether the residual control rights match the residual claim rights or not is the starting point to explore the decision rights allocation mode of parent-subsidiary corporation,this paper identifies the synergy allocation mode of parent-subsidiary corporation under group management and control based on the cause level of rent dissipation.Theoretical derivation and data verification are carried out with the mechanism of the internal capital market operation and the degree of function realization.Most of the previous literature studies have done a lot of research from the consequence level of the rent dissipation theory.This paper extends the effect level to the cause level,providing an important supplement to the application research of the rent dissipation theory in enterprise groups.Thirdly,the research framework of group decision rights allocation is enriched from the aspects of mitigation mechanism and selection mechanism.Previous studies focus on the discussion of decision rights allocation mode from the centralized and decentralized mode,and have rarely paid attention to how to alleviate the inefficiency caused by the inappropriate decision rights allocation mode and the optimal decision rights allocation mode as well as the selection mechanism of this appropriate decision rights allocation mode.This paper discusses mitigation effect of the internal and external governance mechanisms on the damage of the company’s value caused by the inappropriate allocation of decision rights mode.Based on the residual claim in the cause level,this paper attempts to find out the factors that affect the synergy allocation mode and theoretically analyze its mechanism.This paper not only reveals the mitigation mechanism of the inappropriate decision rights allocation mode,but also makes up for the lack of discussion of the appropriate decision rights allocation mode in existing research.It further improves theresearch framework of the parent-subsidiary decision rights allocation mode and is an important reference for the choice of group management and control mode.