Family Control And Corporate Governance Of China's Listed Companies: An Research Based On The Theory Of Contracting

The three main branches of contract theory, consigning agency theory, incomplete contract theory and transaction cost theory, are not repulsive to but supplementary for each other. Especially in the explanation to the corporation governance of public companies, the different branches of the contract theory have their respective focuses yet all the same time they reinforce each other. The author based on the contract theory, which includes the three main branch theories, interprets the problems of family control and corporate governance of China's listed companies.Under the framework of the above-mentioned theory, the author takes the 122 companies listed at the Shanghai Stock Exchange and Shenzhen Stock Exchange in 2002 as analysis examples and reaches the finding that in the family controlled listed companies there exist the first level agency relationship regarding ownership problem between the controlling families and the outside small and medium-sized stockholders on the one hand, and the second level agency relation regarding management problem between the family employers and the family/non-family employers on the other hand. While the first agency relationship degenerates the firm value, the second agency relationship does not necessarily lead to negative influences. Further research on the first level agency relationship reveals that there appear in the family controlled listed companies five kinds of agency conflicts: ownership structure, capital structure, stock pyramids, departure of control and cash rights, and price warp of current and non-current stocks. It is concluded in the paper that the dissevering of stockholder into current and no-current segments is the upmost cause for the agency conflicts.With the analysis result of above and the reference to the Korean experience of governing the family-controlled chaebols, the author suggests that the earlier to deal with the expropriation problem of the outside small and medium-sized stockholders by the controlling families of listed companies is the better. The earlier the problem solved, the lower of the cost induced. Government and relative subjects should explore the governance problem of the family-controlled listed companies balancing and integrating multisided elements under the three-dimensioned framework. At the end of the paper, the author carries out the related policy suggestions.