| In modern times, it has become a normal phenomenon that the ownership structures of the enterprises are relatively concentrated around the world. Along with the equity concentration, an interest conflict between large shareholders and small&medium-sized ones come into being, which becomes the main corporate governance problem instead of the conflict between management and the owners in the equity highly decentralized state. Especially, the capital and enterprise scale expansion lead to a phenomenon that a big shareholder controls several companies. Big shareholders, the so-called ultimate controllers, usually adopt pyramid-shaped structure to implement the control, so their control rights in the bottom companies often exceeds the cash flow rights, forming excess control, which makes the ultimate controllers more capable to encroach on small&medium-sized shareholders, and thus intensifies the interest conflict between them and generates corresponding agency cost, and manipulating the bottom companies to overinvest is an important way to fulfill the encroachment. In China, pyramids shareholdings are wide-spread, especially among the private companies. So, there must be theoretical and practical significances to research on the overinvestment in private companies which own pyramidal holding structure.In this paper, basing on the introduction to related theories, we classify the domestic and foreign literatures about pyramidal holding structure and overinvestment, and find our starting point, i.e., verifying the effects of ultimate controllers’ separation degree of two rights and free cash flow on overinvestment and to make out the direct control chain then combining equity restriction ratio and other inner governance factors to research on the overinvestment in private companies. Afterwards, we define the concepts of ultimate controller, separation degree of two rights, efficiency of investment and direct control chain in this paper, and basing on these concepts we perform the theoretical analyses and put forwards related hypotheses. Then, in the empirical analysis, using panel data of467private listed companies in2009-2011as initial samples, we pick out631overinvested compound ones by Richardson (2006) investment predicting model, then build multi-regression models to examine effects of the separation ratio of two rights, free cash flow, direct control chain, equity restriction ratio and other inner governance factors on overinvestment. The findings about overinvestment level of private listed companies which own pyramidal holding structure we get are as follows:First, the overinvestment level and the separation degree of ultimate controllers’ control right and cash flow right are notably positively related. Second, there exists certain sensibility between overinvestment and free cash flow, which means more free cash flow will lead to more severe overinvestment. Third, the overinvestment level is negatively related with equity restriction from other big shareholders to ultimate controllers. Fourth, there is no prominent restrain from the director board governance which are proxied with independent director ratio and the soundness of professional committees, while executive compensation shows notable restrictive effect. Fifth, the ultimate controllers’direct control chain can obviously restrain the effect of separation of their two rights on the bottom company’s overinvestment.In the end of this paper, combing the empirical findings, we put forward responding relevant measures and suggestions in the aspects of perfecting disclosure system, adjusting equity structure, enforcing executive incentives and bettering governance mechanism of the board of directors. |
