The Formation Reason And Influence Of Pyramidal Structure: A Case Study Of China

This paper examines the functions of pyramidal structure in china's capital market by the way of case study. We study at the beginning of the pyramidal structure's formation causes, through the view of the developing direction of the state's corporation. At one hand, the government can keep control on the corporation, such as "WuLingYe". The listed corporation provides resources to the group becoming "large and strong" through the pyramidal structure which plays a role of finance platforms for the group and tools for realizing government's administration purposes. At the other hand, the government can transfer the control right to private enterprise by the means of MBO, such as "CaoYuanXingFa". The listed corporation becomes the internal and external finance channel of controlling shareholders and the origin of expropriated interests. The pyramidal structure becomes the tools of "tunneling" for the controlling shareholders. Whichever developing direction of the state's corporation will cause decrease to the listed corporation's value and minority shareholder's interests. The pyramidal structure causes serious agency problems.