Research Ultimate Control Of The Company Influence On Investment Behavior

For the listed companies in China, the equity is concentrated which makes thecompanies are strongly controlled by the major shareholders. Then the ultimatecontrolling shareholder has the motivation of invading. The pyramid structure resultthe separation between the control rights and cash flow rights to a certain degree. TheSeparation leads to the potential conflict of interest between shareholders andminority shareholders. As the ultimate controlling shareholder has a strong ability andmotivation to perform the investment behavior for achieving their interests, they willcontinue to implement self-interested behavior via tunnel and then deprive theresources and the interests of the minority shareholders. The pursuing for the privateinterest to make objective decisions no longer maximizing the overall value of theenterprise, but maximizing shareholder wealth which makes the conflicts betweenshareholders exacerbated. In recent years, many problems appear in Chinese listedcompanies, such as frequent changes in raising funds, serious idle funds, blinddiversification, and efficiency investment. To sum up, with the background of China’scapital market, the investigation on the impact of ownership structure upon corporateinvestment behavior is of theoretical and practical significance.This article firstly reviews and summarizes the findings of relevant literatures,defines the basic concepts and theories regarding to the ultimate control andinvestment behavior to make a theoretical basis for the hypothesis presented in thisarticle. In the empirical analysis section, this article selected2646listed companies inShanghai and Shenzhen through2010to2012as a sample. The aim of this article is toexplore the difference of the impact of ownership structure upon corporate investmentbehavior under different strength of shareholders. Therefore the full sample is dividedinto three groups: absolute control type, relative holding type and the dispersedholding type according to the differences of the ultimate control of the controllingshareholder to conduct empirical research and analysis, so as to gain a deeperunderstanding of the mechanism of the impacting of ownership structure uponcorporate investment behavior.The study found that high proportion of control exists in companies withabsolute control type, and the ultimate shareholders have strong control of listedcompanies and strong ability to implement the depriving behavior. When theseparation of ownership is large, the ultimate shareholders not only have strong motivation to deprive but also have large proportion of stakes and then have theability to implement the depriving behavior. For these sub-samples the deprivingbehavior of the ultimate shareholders are not limited by their abilities. In companieswith relative holding type, the control rights and cash flow rights are in the middlelevel. When the separation between control rights and cash flow rights is large,although they have strong motivation to deprive the implementation is limited by thecontrol rights. Their motivation is not fully filled. In companies with dispersedownership type, the control rights is low and the separation between control rights andcash flow rights is not large which means that the motivation of ultimate shareholderto deprive is not strong and they can not impact the investment behaviors of thecompanies effectively. These above conclusions are worth of further studying infuture. Finally, this article put forward some suggestions on improving the efficiencyof investment management for the Chinese listed companies.