The Ultimate Control Right and the Investment Efficiency in Listed Companies
|School||Dongbei University of Finance|
|Keywords||ultimate control right investment efficiency capital occupied|
Investment is a major driver of the company’s development and an important foundation for growth of future cash flow. As a micro-foundation of the overall macroeconomic, Enterprises’inefficient investment behavior will inevitably endanger the survival and development of the company, even the entire country’s economic growth. Inefficient investment behavior is common in China’s listed companies. System carding scholars at home and abroad on inefficient investment behavior of listed companies, combined with the reality of China, we think that agent problem is an important cause of Chinese listed companies’ inefficient investment behavior. To explain investment efficiency, agent theory cannot be divorced from the specific institutional backgrounds. In china, the share structure of the listed companies is very centralized, and the ultimate control shareholders exist. Ultimate control shareholders can hold control rights exceed their cash flow rights in concentrated ownership structure. The deviation of the two rights would drive controlling shareholders to obtain numerous private benefits through violating minority shareholders’benefits if minority shareholders are poor protected.Based on the above analysis, we discuss whether the deviation of control rights and cash flow rights effect the efficiency of investment, then make further study to the mechanisms between the ultimate control shareholder and inefficient investment behavior. We believe that in the condition of two-right-separating, the ultimate shareholder should affect the investment decision of the listed companies, resulting in inefficient investment, which originated from the pursuit of private benefits. We select a set of stock A companies in Shanghai stock market and Shenzhen stock market in 2007-2009 to be our initial sample, excluding financial and insurance sectors, and removing the companies their ultimate shareholders can not be recognized, to test the theoretical analysis. We found that ultimate controlling shareholder will lead to inefficient investment of listed companies. Using capital occupied by ultimate controllers as an alternative measurement of private control benefit, we do further study of how does the ultimate controller effect on listed companies’investment efficiency. For pursuit of private control benefit, the ultimate controller would take up capital of listed companies, the company resources are scarce and have to give up a positive net present value of the investment project, leading to inadequate investment.Possible contributions of this thesis are:first, we study the listed company’s inefficient investments from the view of ultimate control right. Based on domestic and overseas studies, taking pyramid model shareholding structure are widely used in the listed companies into consideration. We discuss companies’ non-efficient investment behaviors from the view of ultimate control right directly. Second, we further investigate how dose the ultimate shareholders influence the listed company’s investment behavior. We make the conclusion that the pursuit of private control interest is one way that lead to non-efficiency investment. Third, we use capital occupied as an alternative explanatory variable, empirically tests private control interests lead to non-efficient investment in listed companies. Results show that the ultimate shareholders lead to insufficient investments by occupying huge sum funds of listed company.Shortcomings in this thesis are:first, the research on ultimate control right is not all-sided.This thesis focuses only on the separation of control right and cash flow right, and its effects on the efficiency of investment. We do not discuss the level of the pyramid structure, nature of the ultimate controller and many other sides. Second, when studying how does the ultimate shareholders effect the investment efficiency, we only discuss their occupation of capital. In this thesis, we consider capital occupation as a way that the ultimate shareholders infringe the interests of minor shareholders, which lead to the efficiency of investment.However, there are many ways the ultimate controllers pursue private interests. We have not research on other ways other than the capital occupied.