The Study Of Ultimate Ownership Structure Impact On Investment Behavior Of Private Enterprises

With the further development of reform and opening up, private enterprises of our country have got a rapid development and have accounted for an increasing proportion of GNP during the last two decades. Private enterprise becomes more and more important to the whole economics. However, most of China's private enterprises is under the control structure at the Pyramid. There are more and more such situations in private enterprises that controlling shareholders tunneled the listed companies and invaded the interests of minority shareholders. And the controlling shareholders often get the controlling resources through over-investment to obtain the private interests of control .So how private enterprises can inhibit the over-investment behavior of controlling shareholders? The solution must rely on the effective corporate governance structure, and the most important aspect is to optimize the ultimate ownership structure of private enterprises.Research purpose:First, if the ultimate controlling shareholder will take the over-investment action or receive the projects in which NPV<0 when they have too much control.Second, the smaller the proportion of cash flow rights and control, that means the bigger Separation of two rights , the more serious agency conflicts between large and small shareholders, which will make enterprises tend to invest?Last, large shareholders tunneled the interests of small shareholders through over-investment , and received the private rights of control in private enterprises, Then whether the outside big shareholders'checking and balancing roles to the largest shareholder in private enterprises work or not?The main contents of this article is how the ultimate ownership structure of private enterprises based on the control structure at the Pyramid affects the corporate investment behavior .which is researched from the several dimensions including proportion of controls of ultimate controlling shareholder ,separation of two rights and equity restriction ratio, and uses the empirical test to separately indentify the impact of the ultimate controlling shareholder including the manufacturing and private non-manufacturing to enterprise investment by grouping way of group. After a literature review, empirical test, we draw the following calculations like that:1. The primate enterprises of our country generally belong to the pyramid type of shareholding structure,and ultimate controlling shareholders of enterprises at the top of pyramid chain tunnel the small and medium shareholders seriously, and the controlling shareholders using their control of the chain gain the top private benefits of control by conveying resources from the bottom to the top of the pyramid chain. However, as the proportion of the controlling shareholders holding control increases to the absolute control, the benefits of controlling shareholders will be consistent with that of the minority ones, which produce the convergence of interest effects. thus the controlling shareholders will not tend to increase his controlling resources through the over-investment behaviors, that's because if they do like that, the cost they pay will be much more than the private interests they will gain, so the controlling shareholders value the benefits of the minority ones and engage in activities conducive to business and shareholders, in order to gain the common benefit, so when the proportion of the controlling shareholders'ownership from low to high ,the firm's investment intensity increased and then decreased.2. There are many phenomena of separation of two rights in China's private enterprises, which means using less cash flow to gain more enterprise controlling rights, and using extra control to invade the benefits of minority shareholders. especially in private manufacture enterprise, the degree of separation of two rights is more greater. And empirical studies have shown that the degree of separation of two rights of ultimate controlling shareholders have positive correlation with the business investment spending levels. The greater separation of two rights is, the more private benefits that the controlling shareholders will gain. As a result, the controlling shareholder is more willingly to invest the inefficient project, which will lead to decrease in value. In pyramid type of private enterprises, controlling shareholders use their less cash flow to control the lower enterprises in pyramid chain, which provides convenient for controlling shareholders to tunnel the lower enterprises,while damaging the enterprise's value and the interests of minority shareholders.3. The structure of equity restriction ratio would not achieve the role of effective checks in China's private enterprises. Though the proportion of the largest shareholders and the second largest shareholders is greater and greater, the investment of enterprises has no any difference. We find that in private enterprises, the largest shareholders'ownership percentage is often ten times or even a few times than that of the second largest shareholders, therefore, the largest shareholder has absolute control to the enterprise, the second largest shareholder equity is too little to suppress acts of the largest shareholder. Although equity restriction ratio is the optimal ownership structure, most of China's private enterprises are in a pyramid ownership structure, checks and balances of other major shareholders to the largest shareholder have no effect.This research combines the situation in our country, giving the following recommendations:1. Improve the ultimate ownership structure of private enterprise and the information disclosure system of the ultimate controlling shareholder.2. Strengthen the regulatory acts of the ultimate shareholder in private enterprises and construction of investor protection laws and regulations.3. Increase other big shareholder's ownership percentage.