The Study On Private Benefits Of Control Of China’s Listed Companies Under Full Circulation

Since the early1990’s, Private benefits of control have been one of the most important research topics in the area of corporate finance and corporate governance, which had got brilliant achievements. Not only our country, but also the whole world, the controlling shareholders would use their share advantages to get private benefits of control, which would damage the interest of small and medium shareholders. It has been one of the most serious problems of capital market. To gain the private benefits of control, large shareholders would make decisions not base upon the goal of maximize company value or the stakeholders’anymore, which damage the company value and other shareholders’ interests. The behavior of controlling shareholders disorder the financing function of capital market and lower the efficiency of resource allocation. Therefore, how to take precautions against controlling shareholders’expropriation has been the central issue of corporate governance in our country, as well as the countries all over the world.By gaining better knowledge on these phenomena of previous research, this study focus on our country’s listed companies’private benefits of control under the background of full circulation, use difference methods to evaluate the and compare the private benefits of control before and after lockup of un-circulating shares. Furthermore, the market value of circulating shares has been included in the research, and the relationship of expected appreciation of controlling shareholders’shares with the private benefits of control are also considered. Finally, the controlling shareholders’allocation of resource based on private benefits of control under full circulation has been studies. From above research, the study would improve our country listed companies’corporate governance, reduce private benefits of controlling shareholders, as well as give suggestions to protect the interest of small or medium shareholders. The main topics of this study are shown as below.Firstly, the paper reviewed the current and past researcher in the fields systematically, and considered special institutional background of our country, the empirical research methods are used to evaluate the private benefits of control from the point of nature of ownership and aspects could affect private benefits of control. The result of empirical study shows:the legal person of state-owned shares’PBC is the highest, the personal shares’ PBC is the second; for the state-owned shares, the decentralization of share, balances power of shareholder, and the proportion of state-owned shares have restrained effects on PBC, companies controlled by state are more like to gain PBC by overhead cost; in the personal shares, the decentralization of share and balances power of shareholder are negatively related with PBC, while their effects are limited.Secondly, in the condition of shareholder structure reform, the paper evaluate the relationship with expected return of un-circulating shares and private benefits of control. The result of empirical study shows that, the private benefits of control is negatively associated with profit position, the size of the company, balances power of shareholder; there is a positive correlation between the multiple abnormal return of un-circulating shares, the ratio of debt financing, the share proportion of transference, the decentralization of share. No evidence shows that the size of circulating stocks can have influence over the private benefits of control.Thirdly, based on the theory of capital investment results in private benefits of control (PBC), and combined with our current special market level、arrange of shares system、 advance by stages of China’s shareholder structure reform, the paper empirically studies control benefit grabbing from fix capital investment and equity investment. The result of empirical study shows that:the PBC after lockup expiration are higher than the before ones; controlling shareholder can obtain the benefits of control by increasing capital investment, and the private benefits of control is positively associated with capital investment level. With lockup expiration of Chinese non-tradable shares, the positive relationship is getting weakened; equity investment is positively related with the PBC. When the non-tradable shares are lockuped, the benefits of controlling shareholders are expanded, which leads private benefits of control is more sensitive with level of share rights investment.Finally, under the condition of restricted shares’selling., based on the theory of private benefits of control, this paper builds double—temporal expropriation models under intertemporal investment to analyze how cash—flow rights、percentage of restricted shares’ selling and future rate of return of reducing shares affect private benefits of controlling shareholder. The conclusions show that:cash flow rights are negative with current and future first-best expropriation; percentage of restricted shares’selling is positive with current and future first-best expropriation; future rate of return of reducing shares is negative with current first-best expropriation,but irrelative with the future first-best expropriation level. The current first-best expropriation in double-temporal is lower that that in single expropriation. For the reason of controlling shareholder’s selling behavior, the future first-best expropriation in double-temporal is higher than that in single expropriation.