Family Control And Firm Value: Evidence From China Private Listed Companies

With the private economy develops, more and more private company come into the market to break the financing bottleneck in our country. But in these two years, the family-controlled listed companies have broken out credit crisis. The article aims to answer two questions: is the family control efficient and how to influence firm performance? We first focus on the shareholding structure of the family-controlled listed company, and find that the pyramidal shareholding structure in most family firms brings about the separation between the cash-flow right and control right of the ultimate owner. This separation produces disadvantageous effect to firm value. We choose 150 family-controlled listed companies out of Shanghai and Shenzhen stock exchanges to explore the relationship between the cash-flow right and the control right. The paper finds the firm value increases with the cash-flow right of the ultimate owner, consistent with a positive incentive effect. But the firm value falls when the degree of the separation between cash-flow right and control right increases, consistent with an entrenchment effect. Through out our investigation, we know more about the governance structure of the family-controlled firms and can find the path to maximize the firm value.