Theoretical And Empirical Research On Pyramid Structure And Large Shareholder Encroachment

Due to the wide existence of the pyramid structure and the common phenomenon of the separation between cash flow rights and control rights, the issue of large shareholder encroachment has become the hot spot of many scholars of this field. With the increasingly prominent role of internal control in corporation governance, research about the pyramid structure, internal control and large shareholder encroachment also becomes more and more significant. Using the sample of all non-finance A-share listed companies in Shanghai stock market and Shenzhen stock market from2009to2011, this paper studies the relationship between the pyramid structure, effectiveness of internal control and large shareholder encroachment with theoretical analysis and empirical analysis, and tests the intermediary role of internal control validity between the pyramid structure and large shareholder encroachment with the testing method of intermediary variables. This paper weights the pyramid structure with control rights, cash flow rights and the separation rate between control rights and cash flow rights, measures the validity of internal control with the disclosure degree of internal control deficiencies and internal control assurance report, evaluates large shareholder encroachment with large shareholders’ capital impropriation and the ratio of related guarantee to total assets. The research result shows that there is a positive correlation between cash flow rights, the separation rate between cash flow rights and control rights and internal control validity, while there is a negative correlation between cash flow rights, the separation rate between control rights and cash flow rights and large shareholder encroachment; there is a negative correlation between the internal control validity and the degree of large shareholder encroachment. That is to say, the internal control is more effective, the degree of large shareholder encroachment is much lower. In addition, the study also finds that, when we treasures the validity of internal control with the disclosure degree of internal control deficiencies, the effectiveness of internal control has an intermediary role between the pyramid structure and large shareholder encroachment, while treasuring the validity of internal control with the disclosure degree of internal control assurance report, the effectiveness of internal control has a significant intermediary role between the pyramid structure and large shareholder encroachment. From the foregoing, we may draw a conclusion that internal control has an intermediary role between the pyramid structure and large shareholder encroachment. That is to say, shareholders in the pyramid structure can achieve the interests of the encroachment by influencing the effectiveness of internal control. Finally, the paper puts forward related policy suggestions of departments of supervision, internal control and the investors based on the research results.