Pyramid Shareholding Structure And The Cost Of Debt

Nowadays, pyramid shareholding structure is widely used in enterprises all over the word, China is included, especially in private enterprises. The separation of control rights and cash flow rights comes out, which makes that the actual controller have greater motivation to do harm to the creditors. It means that the agency problems lead to the rise in the cost of debt. In our country, different nature of property rights bears different cost of debt. Private enterprises face severe credit discrimination. On one hand, it’s because that agency problems are more serious in private enterprises. On the other hand, it is a special phenomenon under the situation of our country. With the launch of Small and Medium Enterprises Board, the number of private enterprises increases rapidly. As an important part of it, founding family enterprises grow rapidly as well. Founding family enterprises always have long-term operating window, centralized risk of investment and pay attention to reputation. Compared with state-owned enterprises and private but none founding family enterprises, are the agency problems for founding family enterprises mild? Is the cost of debt for founding family enterprises much lower? Would founding family affect the relationship between pyramid shareholding structure and the cost of debt?The paper chooses4889companies listed in Shanghai and Shenzhen Stock Exchanges between2007and2011as samples. The paper is based on the principal-agent theory and information asymmetry theory. We redefined founding family enterprises and the nature of property rights. We divide our samples into state-owned enterprises, private but none founding family enterprises and founding family enterprises to see the relationship among pyramid shareholding structure, the nature of property rights and the cost of debt.The paper draws the following conclusions. First, compared with other types of enterprises, the founding family enterprises bear the highest cost of debt, and it will strengthen the positive relationship between pyramid shareholding structure and the cost of debt. However, private enterprises have no significant influence on the relationship between pyramid shareholding structure and the cost of debt. The state-owned enterprises bear the lowest cost of debt; the private but none founding family enterprises’ cost of debt is in the middle; founding family enterprises bear the highest cost of debt. Second, pyramid shareholding structure will result in higher cost of debt.The innovation of this paper lies in two aspects. First, the paper divides the nature of property rights into three types, which are the state-owned enterprises, private but none founding family enterprises and founding family enterprises. We can obtain more precise conclusion. Second, founding family enterprises will strengthen the positive relationship between pyramid shareholding structure and the cost of debt. But private enterprises have no significant influence on it. The results are different from foreign research.