Empirical Research On The Influence Of Disproportional Ownership Structure On Connected Transaction And The Legal Protection Of Investor’s Moderating Effect

The traditional agency theory is based on the standpoint of Berle and Means (1932) on the high degree of separation between ownership of modern enterprises and the control right, resulting in the conflict between managers and shareholders. With the gradual penetration of countries’corporate governance management and comparison research in the late1980s and the corporate governance research of emerging markets at the beginning of the century, more and more scholars find that the high concentration and controllable shareholders is a common feature of stock structure of most country especially in Asia’s emerging economies. On account of ownership structure focused on the handful holding shareholders, which gave rise to the problem of the control of large shareholders, big shareholders with its own most of the company’s voting rights at the expense of small shareholders and creditors, to seek greater than the corresponding holding shares of capital gains additional benefit for himself.China listing Corporation exists in the’dominance’phenomenon, large shareholders with the right of control listing Corporations, make use of transactions to achieve its own benefit maximization and bring predatory behaviors. for example:Monkey King Co., Mailyard, three nine pharmaceutical, happiness industrial, Ji’nan Qingqi etc, which makes the affiliated transaction has already become an important symbol of governance structure imbalance in China’s listing Corporation. As China’s economic system from planned economy to market economy, most listing Corporation is restructured from state-owned, and reorganization ago company has have all kinds of connections with these listing corporation, which had many related purchases and sales, leasing, guarantee with controlling shareholder. Therefore serious problem of control of large shareholders is exist in corporate governance in our country, how to alleviate this agency problem has become the new direction of the theoretical study of corporate governance.Most scholar researches the problem of large shareholders control in the corporate governance based on the paradigm of Berle and Means, this paradigm is the premise of highly dispersed ownership structure, and cannot adapt to the actual situation. In the concentration conditions, what is inner mechanism of controlling shareholders use related party transaction expropriate minority shareholders and the outside investors? Can the legal protection of investors ease principal-agent problems brought by the large shareholder? To solve these problems is the focus of this paper. In this paper, we analyzing the classical theory and related literature, and using the study of La Porta, Lopez-De-Silanes, Shleifer, Vishny (1999) and Johnson (2000), find that ownership structure is relatively concentrated and exist separation between cash flow rights and vote rights. Shareholder uses excess control rights from the disproportional ownership structure, against the interests of small shareholders and outside investors through affiliated transactions. In this paper, the shareholders dated back to ultimate controller and to calculate its cash flow rights, voting rights and degree of separation of the two rights, which is measure the disproportional ownership structure under the condition of the relative concentration. According to Yifeng Shen (2004) and Peng Wang (2008) studies, we designs China’s investor protection index from2003to2009. Ultimately we selected614listing Corporation from2003to2009, conducted the research from two aspects:one is the relationship between disproportional ownership structure and related party transactions, another is that investor legal protection influences this relationship.An empirical study on the relationship between disproportional ownership structure and related transactions found: Two rights separation of ultimate controller have a positive effect on related party transaction size; The ultimate controller’cash flow rights have a negative effect on related party transactions, the bigger ultimate controller cash flow rights have, the more they have motivation to supervise senior management personnel and control management risk. Hence, they can create more value, and use related party transactions to transfer the company’s assets and profits will be greatly reduce. it results in a reduced scale listing Corporation connected transaction. Therefore, disproportional ownership structure is a double-edged sword, not only may encourage ultimate controllers supervise managers and a weakening of the small shareholders and outside investors tunneling motivation function, but also may gain the use of affiliated transactions. In this study, an empirical research about legal protection of investors affect the relationship between ownership structure and related party transactions fund that legal protection of investors have a positive effect on related party transactions; regulation of investor legal protection for the separation of two rights has a negative effect on related party transactions, legal protection level can weaken the ultimate controller the separation of two rights; Regulation of investor legal protection of cash flow rights has a positive effect on the associated transaction, the level of investor protection improvement can weaken ultimate controller use related party transactions to tunneling as the increase of cash flow rights, so it can reduce the scale of transaction size.In conclusion, this paper find that two aspects can alleviate the problem of large shareholders control:Firstly, government and the relevant regulatory agencies should be reasonable design the ratio of disproportional ownership structure to maintain the degree of separation of cash flow rights and voting rights at a proper proportion, so as to achieve the purpose of encourage ultimate controller; Secondly, the legal protection of investors is the external corporate governance mechanism, Which can effectively suppress the ultimate controller’s occupation to the small shareholders and the interests of outside investors and effectively encourage the ultimate controller to strengthen the supervision on managers to produce the "incentive effect", We can see that external governance mechanism can make up for the defect of internal corporate governance mechanism in a certain extent.