The Tunneling Under Pyramid Holding Structure

The pyramid holding structure research is a forward-looking task. It's useful for enriching and developing Chinese holding structure theory, improving the financial supervision department's ability to monitor the pyramid holding structure and protecting the interests of small shareholders well. This paper carries out a tunneling theoretical research based on the earlier results comprehensively and deeply, using family listed firms to prove it.The core of this paper is to study the mechanism of tunneling behavior under pyramid holding structure. The results show:1. as "economic man", the ultimate controller has the motivation and the specific behavior to obtain the other shareholders'interests. In pyramid holding structure, control powers and cash flow rights are separated. What's more, with the control chain length increasing, the ultimate controller will achiever more control powers with less assets. The more complexity the pyramid holding structure is, the easier the ultimate controller obtains the interests. The separation of the control powers and the cash flow rights is, the possibility the ultimate controller obtain interests by tunneling. The ultimate controller obtains all interests and only undertakes a little part of loss.2. the occurrence of tunneling is closely related with the separation factor of control power and cash flow rights, information asymmetries. With the separation of the control powers and the cash flow rights, tunneling behavior incentives increase; as the small shareholders' protection of legal system improves, the cost of tunneling will be higher; the ultimate controller will take measures such as financial fake report, illegal report, the omission of significant information to increase the ultimate controller benefit and information asymmetries in order to hide the tunneling behavior.3. the ultimate controller takes the following measures to tunnel listed companies:(1), transfer funds to the top firms or the wholly-owned companies directly; (2), transfer funds to the top firms or the wholly-owned companies through associated transactions, or turn into debt to them; (3), abridge the opportunities of the low company.4. the medium and small investors suffer great loss during tunneling, but the medium and small investors can tolerate a certain degree of tunneling. Investors believe that the ultimate controller will support the listed firm in the long run time.This paper takes Green Cool Group as an example to analyze tunneling.At last in the perspective of investor protection, the government should improve the relevant laws and regulations, improve the listed firms' financial transparency, and use the limited regulatory resources to monitor complex ownership structure firms or associated transactions listed firms which happen frequently.