Pyramidal Structure And Firm Value

La Porta had studied the equity structure of 279 listed companies of the developed economies in the world. He found that except in the USA, UK and Japan, whose equity structures were widely-dispersed, there are existed ultimate controlling owners in most of the other countries'listed companies. In order to separate the ultimate control rights and the ownership rights, the ultimate controlling owners usually apply the Pyramidal structure, Cross Ownership and Dual Class Equity to establish a control chain. The Pyramidal Structure is also common in China's stock market.Based on the fundamental theories of pyramidal shareholding structure, this paper makes a theoretic and empirical study on the relationship between the pyramidal shareholding structure and firm value of China private listed companies, using the empirical data of China private listed companies between the years of 2006-2008.The results of the empirical analysis indicate that the pyramidal shareholding structure is very common in China private listed companies. Taking the Pyramidal company into account,the Paper finds that 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.The paper also tries to study the relation between the Check-and-Balance Ownership Structures and firm performance. We find that at a lower level, the higher degree of ownership balance has a positive effect on listed companies'performance. At a higher level, we find the opposite conclusions.