Institutional Environment,Structure Of Control Rights And Behavior Alienation Of Family Shareholder

Since the Chinese government started to pursuing the market-oriented economic reform, the private enterprises which dominated by family have been developping to be the most dynamic and compelling part of China’s economic development. Besides, it has been also evolving to be the major power to promoting economic transformation and maintaining sustained high growth of china’economy. As an intermedium between government and market, the company which controlled by families can replace the government and market to fulfilling the functions of raising capital, distributing resources and saving transaction costs. However, the unique double principal-agent feature derived from family-controlled form has also been questioned and criticized by the theorists and practicer.From the perspective of agency cost, the mechanism of family-controlled form can generate two distinct governance effect. Positively, the mutual embedding of enterprise and family make company to be part of family, family wealth and reputation are closely linked to business development. Thus, the higher degree the family controlled, the more motivation and ability the controlling family has to make long-term, beneficial decisions. Negatively, the mode of family-controlling can slso afford family shareholder the convenience and motivation to tunneling companies’ resources. So, whether the Chinese family-controlled form reflect the “efficiency view” which based on altruism, or “rent-seeking view” lies on tunneling motivation? Further more, how does the competing opinion affect companies’ financial decision? Existing literatures do not give a reasonable theoretical analysis and empirical evidence. Based on the institutional economic theory, ultimate ownership theory and principal-agent theory, this paper analyze the internal mechanism of the control distrihution. further studies investigate the influence of control structure on corporate debt financing and managers governance, in order to make a criterion to regularize family behavior and the mode of financial decision-making under the statue quo of governance in family-owned listed companies, provide empirical proof and referenced basis which are much more systemic and more close to the corporate character in transition period. Concretely, the research which carried out in this paper are as follows:Firstly, given China’ unique transition background, the thesis investigates the impact of external institutional environment on the structure and formation of family controlled enterprises. The result shows that, the distribution and formation of family control right is significantly dependent on external institutional environment, but different institutional mechanism which affects the regulate effection are not consistent. The result also indicate that, in current transition period, creatively using of control right, as an important tool to obtain corporate earnings and seize private benefit from control, may embody large shareholders’ tactic motivation and opportunistic behavior.Secondly, given inperfect investor protect mechanism, government intervened financial system and contingent large shareholders’ tunneling motivation, this paper exams the separation of two rights of ultimate controller’s impact on the behavior of corporate financing and ultimate controller’s funds embezzlement. Further study analyzes the influence of political connections and institutional environment. The result indicates that, the more the two rights separates, the less bank loans the company gains, but the political connections of entrepreneur can alleviate this effection. However, the motivation of family-enterprises which strive for excess loans is to accumulate more resources so as to encroaching company’s resources, rather than taking advantage of credit governance. The constraints of external institutions can reduce the ultimate controller’s funds embezzlement, but the political connections can also weaken the constraint function in current circumstance.Thirdly, under performance-oriented pay system, ultimate controller’s tunneling may undermine the company’s performance which directly results in the losses of manager’s reputation and interests, so that the managers who accept higher pay performance sensitivity will be more motivated to resist or impede ultimate controller’s tunneling, therefore, in order to create a favorable environment to tunneling, large shareholders would bribe managers, eg. providing non-performance pay, weakening the efficiency of executive incentive, etc.. This paper analyze the impact of large shareholders’ tunneling on executive incentive and earnings management.The results indicate that, the Chinese family-owned listed companies have already established a flexible pay-for-performance system, but large shareholders’ tunneling can also weaken the efficiency of executive incentive which even trigger the earning management conspiracy between large shareholders and top executives.Compared with the existing literature, the characteristics and possible innovation in this paper may be reflected in the following points:① At present, the literature which related to family enterprises are mostly exploring the economic consequences of family control right distribution exogenously, few scholar research the institutional motivation of the structure and formation of family control right. By studying the impact of external institutional environment on the structure and formation of family control right, this paper contribute to uncovering the black box at the behind of family control mechanism, besides, it is also provides an insight perspective to understand the reason why family control a listed company in diversity and multi-level way.② By investigating the impact of the separation of two rights on corporate financing and ultimate controller’s debt embezzlement, this paper supply a new point of view to comprehending the opportunism of large shareholders. At the same time, relevant conclusions can guide us to know the reason why Chinese banks are reluctant to borrow money to private enterprises. In addition, the conclusions which refers to political connection and institutional environment can also provides us the inefficiencies of informal mechanism such as political connection.③ Through theoretical and empirical analysis, this paper investigates how the dynamic game between large shareholders and managers effect the pay-performance sensitivity and the managers’ behavior of earnings management, which not only make up for the lack of relevant research, but also provides an advantageous perspective for subsequent research.