A Study On The Relationship Between Ultimate Shareholders Control And Expropriation Effect In China’s Listed Private Companies

In recent years, with the rapid development of China’s economy, private listed companies are playing an important role. However, because the mechanism which protects interests of small investors is not perfect, controlling shareholders’decision may result in the expropriation of the minority shareholders by a variety of means. Most of the listed private companies have ultimate controllers, who take charge of the bottom of the listed companies through the pyramidal ownership structure. Under the structure with the separation of control rights and cash flow rights, conflict of interest arises between controlling and minority shareholders.Because the private corporate equity is clear, and can be traced directly to individuals, this paper use china’s listed private companies as a sample to study the relationship between ultimate shareholders control and encroaching effect. First of all, this paper reviews theories about separation of control rights and cash flow rights. This paper analyzes the reason why controlling shareholders infringe the interests of minority shareholders and how it happens.Finally, based on the ultimate controlling revenue maximization mathematical model, constructs the OLS regression model to obtain empirical results and make the relevant explanations. This paper verifies the relationship as follows:The separate structure is common among China’s private listed companies. Compared to the unseparate enterprises, the separate type ones’Tobin’s Q, ROA and EPS are relatively low.The related party transaction level is significant negatively related to Tobin’s Q, ROA and EPS. Possessing more control rights will lead to greater capture effect.On the contrary, the cash flow rights present an opposite correlation with related party transactions. Possessing more cash flow will lead to more support effect.As Expropriation effect is an important way for controlling shareholders to infringe the interests of minority shareholders. When we identify the underlying causes, it can provide guidance to the investment of minority shareholders.To some extent, it also can promote the healthy development of the capital market so as to protect the fundamental interests of minority shareholders.