The Impact Of Local Government Power Allocation On The Control Right Of Listed Companies

The control right owned by the actual controller is the core content of corporate governance,and is a key factor to enhance the company’s competitiveness,promote the company’s sustainable and healthy development,and the smooth operation of the capital market.Most listed companies have actual controllers.The phenomenon of actual controllers controlling listed companies through the pyramid organizational structure is very common,and the research on the control rights of actual controllers has important practical significance.Since La Porta et al.(1999)proposed the theory of ultimate property rights and traced the actual controller of a listed company through a pyramid-level chain for the first time,the actual controller,control rights,ownership and separation of the two rights have gradually attracted attention,and scholars at home and abroad have carried out a lot of research on this and achieved rich research results.The current research on the control rights of actual controllers is mainly focused on its economic consequences,especially the relevant research on the impact of actual controllers on company performance has been relatively comprehensive.In addition,the research on the factors affecting the control of the actual controller is mainly carried out around economic factors.such as macroeconomic trends,capital markets,and corporate financial performance.Few scholars have paid attention to the influence of political factors such as administrative system reform on the control of the actual controller.This article innovatively starts from the perspective of local government power allocation,and studies the impact of the administrative system reform of "turning counties into districts" on the control rights of actual controllers of listed companies."Turning counties into districts" refers to changing counties(county-level cities)under the jurisdiction of prefecture-level cities or municipalities to municipal districts to realize the adjustment of divisions.The essence is the allocation of local government power.The influence mechanism of the "turning counties into districts" reform on the control of actual controllers is manifested in the fact that the allocation of local government power brought about by the reform weakens the administrative capacity of local governments and the incentives for intervention in the local economy and listed companies.After the implementation of the reform,the power of county local governments was raised,and the lack of fiscal,decision-making,and management authority reduced the administrative capacity of county governments.At the same time.changes in the administrative level,status,and management methods of the newly established municipal districts have reduced their independence and autonomy,leading to the weakening of the motivation of local governments to intervene in the economy and listed companies within the district.Therefore,this reform of "turning counties into districts" can actually be regarded as a natural experiment to well discern the administrative capacity of the local government and the motivation to intervene in listed companies within its jurisdiction.It can be used to test the effect of local government power allocation on the control of the actual controller of the listed company.In addition,the reform of "urning counties into districts" is promoted by provincial and prefecture-level city governments and requires the approval of the State Council before it can be implemented locally.It is an "exogenous shock" to study the control rights of actual controllers of listed companies in the jurisdiction,which can overcome the endogenous problems existing in the research on the control rights of existing companies and the research on "political connection" to a large extent.This article chooses the sample data of Chinese A-share listed companies from 2003 to 2018,and uses PSM-DID as the main empirical research method to discuss the correlation between the distribution of local government power after the reform of"turning counties into districts" and the proportion of control rights owned by actual controllers of listed companies in the jurisdiction.On the premise that the benchmark results are robust,this article further analyzes the differences in the impact of reform on the control rights of actual controllers of different listed companies from the perspectives of the heterogeneity of actual controllers and regional heterogeneity.Through research,this article draws the following main conclusions:First,the reform of "turning counties into districts" has reduced the proportion of control rights held by actual controllers of listed companies in the jurisdiction as a whole.The change in the power allocation of local governments has weakened the administrative capacity of the county government and the motivation to intervene in listed companies within its jurisdiction.Secondly,when the "turning counties into districts" reform caused the weakening of the local government’s policy capability and the motivation to intervene in listed companies,the political costs faced by state-owned listed companies decreased,and agency costs increased.The combined effect of the two costs makes the impact of the reform no longer significant in the state-owned listed companies that the actual controller is the prefecture-level city government.However,non-state-owned listed companies do not have the offsetting effect of the above two costs,and the proportion of control rights of the actual controller is still significantly reduced.In addition,the reform of "turning counties into districts" has a heterogeneous effect on the control rights of actual controllers in different regions:in areas with a high marketization process,after the implementation of the "turning counties into districts" reform,the government policy intervention and favoritism for listed companies within the jurisdiction have become weaker.The reform has significantly reduced the proportion of control rights of actual controllers,while the policy effect of reform in areas with a low marketization process is not significant.From the perspective of the relationship between cities and counties,in the "weak city-county-level city" reform environment,the development of listed companies in the counties under its jurisdiction mainly relies on their own advantages and the policy support of the county-level government.The weakening of the power and independence of the county-level government after the county reformation has a greater impact on the government’s administrative capacity and intervention motives,making the impact of the reform more prominent,and the proportion of actual controllers of listed companies in the jurisdiction has dropped significantly,while the control rights of actual controllers of listed companies in a"strong city-weak county" environment are not affected by the reform.In the end,on the basis of all the research conclusions of this article,a number of relevant policy recommendations are further put forward from different perspectives.Chinese "turning counties into districts" reform is of great significance for optimizing the internal governance structure of listed companies,accelerating the transformation of government functions,and stimulating market vitality.This article provides empirical evidence for the company-level research on the "turning counties into districts" reform and provides new ideas and perspectives for studying the control rights of actual controllers of listed companies.At the same time,it also enriches the practical significance of the reform of "turning counties into districts".