A Study On The Influence Of Cross-shareholding On Corporate Governance

In foreign capital markets, cross-shareholding is a common capital operation and expansion means. In China, the history of cross-shareholding is not long, but the phenomenon develops fast. With the rapid development of China’s economy, cross-shareholding will be more widely used in the future for a long time. The practical experience of developed countries tells us that while cross-shareholding brings a great deal of benefit to the enterprise, it also brings some drawbacks, such as distorting the controlling right, prejudicing the rights and interests of shareholders and creditors. Therefore, cross-shareholding should be guided regularly and effectively, or its positive role will not be able to fully played, and it will bring in some drawbacks on the capital market, thus have an impact on the development of the socio-economic. Because cross-shareholding appeared late in China, so the study of cross-shareholding is not mature enough. From the current research literature, the study of cross-shareholding in China is mainly on theory, empirical research is scarce.This paper reviews the theory of cross-shareholding phenomenon at home and abroad, summarizes the relevant empirical research, and analysis the economic consequences of cross-shareholding of listed companies according to the institutional environment of China’s listed companies from theoretical and empirical comprehensive. The author hopes to have a comprehensive understanding of the impact of cross-shareholding of listed companies on company government structure in China.The contents of this article are as follows:First of all, the opening of the article is an introduction. This part introduces the purpose of this study and significance of the research, the research methods used in this article and the highlights of this article.On the basis of the introduction to this article, the paper gives a brief introduction on cross-shareholding, which is Chapter Ⅱ of the article. This section introduces the meaning and classification of cross-shareholding, the origin and development, the pros and cons of cross-shareholding,the status of stocks China’s listed companies cross-holding. At the same time, in the part, the different interpretations of cross-shareholding are summarized, and the scope of cross-shareholding discussed in this research is defined.In the third chapter of the article, this article reviews the existing literature on cross-shareholding. Foreign academic research on cross-shareholding have entered the stage in full swing, especially in corporate governance structure in Japan, in terms of cross-holdings, the theory on cross-shareholding phenomenon have achieved fruitful results both on theory and empirical research. Domestic emphasis pays more attention on the improvement and supplement on laws and regulations, as well as from an accounting point of view to observe the impact of cross-shareholding of listed companies’financial accounting. In recent years, there is little empirical analysis. This chapter reviews the foreign research, and summarizes domestic research.The fourth chapter is the theoretical analysis and assumptions. This chapter is the theoretical basis of the full text, and expounds the theoretical knowledge of the content and methods of this study. It is divided into three parts:The first section describes the theory of corporate governance, and discusses the impact of cross-shareholding of the corporate governance structure, mainly referring to the impact of cross-shareholding on the internal governance structure, including a minority stake in controlling-minority structure and internal control issues. The second section describes the asymmetric information theory and the impact of cross-shareholding on the degree of asymmetric information both internal and external. The third section describes the impact of agency theory and the impact of cross-shareholding on agency costs, including on the agency problem between shareholders and creditors, and the impact on the agency problem between shareholders and management. On the basis of theoretical analysis in these three areas, there are three important assumptions.Based on theoretical analysis of the fourth chapter, the article in Chapter V is the empirical test:First, the research hypothesis. Second, the selection of samples and data. According to the special circumstances of China’s listed company cross-shareholding, the ratio is generally low, so the sample is divided into two sub-samples, cross-shareholding ratio more than10percent for high-stake samples, and below10%for the low-stake samples, in order to improve the above model. Third, the designing of the study, the definition of variables, the expected signs of variables and assumptions, as well as the establishment of regression models. This part clearly points out the reason in the use of the variables and regression models. Fourth, analysis of results the models run, including descriptive statistics, correlation analysis, and regression results.This part gives an analysis of all variables significantly and model goodness of fit based on operating results, explain the operating results from the mathematical point of view.Based on the theoretical discussion and empirical analysis of this article, there some summarizes of the impact of cross-shareholding on company government structure:(1) Cross-shareholding of listed companies produces a significant impact on the internal governance structure between the member companies. Cross-shareholding can increase the degree of separation of control rights and cash flow rights, making the CMS issues and internal control problems more severe, leading to the effectiveness of inter-company and external governance mechanisms. The enterprise can control more share with less capital.(2) The impact of cross-shareholding of listed companies on information asymmetry is not significant. Cross-shareholding promotes the enterprises involved to the formation of business alliances, which may add the difficulty to sell the stock for the enterprises, increase the external enterprise information asymmetry and increase the cost of external financing. At the same time, cross-shareholding may add to the "CMS", which may ease the external enterprise information asymmetry.In this case, the cost of external financing can be reduced, and companies preferred to debt financing.(3) When the ratio of listed companies’ cross-shareholding is low, agency costs are not significant. While the ratio of cross-ownership between corporate managers is high, supervisory role is weakened, the role of internal and external corporate governance mechanisms cannot be play effectively, and thus the agency problem becomes more serious.This article is an empirical research of the impact of cross-shareholding on company government structure between companies listed. On the basis of existing literature, the author discusses the issue on several new angles as following:(1) The angle of cross-holding on the research in this article is innovative. Cross shareholdings, whether it is theoretical or empirical, scholar at home and abroad have carried out extensive and a lot of research. But domestic research on the impact of cross-holdings on internal corporate governance and other aspects are rare. Departure from corporate governance, information asymmetry and agency theory, the status of cross-shareholding of listed companies in China, the paper uses the method of combining theory and empirical research, systematic studies the impact of cross-shareholding of listed companies on company government structure.(2) The division of the study sample is relatively new. In the empirical study of cross-shareholding, current scholars mostly select paired sample to do comparison tests, but the results of using the choice of sample only reflect the performance difference between cross-shareholding and none-cross-shareholding companies in the research questions, does not reflect the degree of effect on the research questions because of the differences of cross-shareholding ratio. Therefore, based on the ratio of cross-shareholding between listed companies in China generally low (mostly below10%), on the whole sample was divided, its stake in10%more companies are divided into high-stake samples,or samples for the low-stake.However, this study also has some limitations:(1)The samples are few. Listed companies are to be screened under some conditions, and ultimately only139listed companies meet the restrictions. The paper studies the data of three years, but some important indicators of the regression results are still less than ideal.(2) The design of the regression model is relatively simple. In the empirical, the SPSS statistical software and the ordinary least squares (OLS) regression analysis to model the sample data are used. But the models which are simple linear regression models, are only designed for the study assumption, not taking into account of other relevant model, so the results of the study limited by certain restrictions.(3) The methods used in the research are relatively few. The author only uses ordinary least squares (OLS) to carry out a simple regression on the sample data. Although the sample is classified to discuss two different cases of cross-shareholding on corporate governance, the limitation of research methods makes the accuracy of the findings affected to some degree.Based on the analysis and conclusions drawn, the cross-listed companies in China, should use its advantages and avoid its drawbacks. At the same time, the government should pay enough attention and reasonable supervision on cross-shareholding of listed companies, and properly guide the development:For listed companies, the cross-shareholding ratio should be strictly controlled. For regulatory authorities, should improve the information disclosure system, require listed companies to disclose the information of cross-shareholding.