The Research On Private Benefits Of Control In China's Listed Companies

Since the 90s of the 20th century, Private Benefits of Control has become a centerpiece of the corporate finance and corporate governance research in the world. Whether in China or worldwide scale, the phenomenon that the managements and controlling shareholders occupy corporate resources through controlling power has become a serious problem in the capital markets. In order to achieve PBC, the managements and controlling shareholders of listed companies encroach the small and medium shareholders' interests, which seriously harm the confidence of investors, weak the capital market's financing function and lower the efficiency of resource allocation. Therefore, how to prevent controlling shareholders such encroachment behavior is not only the focus of corporate governance in China, but also the urgent corporate governance problems to be solved in the most countries of the world.This paper researched on the private benefits of control in Chinese listed companies. On the basis of previous studies, we used normative research and empirical research methods to analyze the institutional background of PBC in China's listed companies, the realization methods and economic consequences of PBC. After that It also studied on the measurement of PBC, in order to realize its level and features. And we adopted econometric analysis tools to find the influencing factors of PBC, to test the correlation between PBC and business performance. Furthermore, It thoroughly studied the regulatory game models and supervision measures to prevent PBC. Through the research we hope to provide theoretical support and advice for improving corporate governance of China's listed company, protecting small and medium shareholders' interests.Firstly, this paper analyzed the unique institutional background of China's listed companies, and with the understanding of contract theory, corporate governance theory, corporate control market theory, principal-agent theory, using normative research method studied the system background, realization methods, economic consequences and market response of listed companies' PBC. The study suggested that the institutional background of listed companies' PBC has the following characteristics:"one strong stock" in listed companies, corporate governance structure is not perfect, "duality" of the ownership structure, the legal system to protect small and medium investors is not perfect, and the weak market supervision. The ways to achieve PBC include controlling shareholders' embezzlement behavior, related party transactions, malicious financing, and profit manipulation. Managements and controlling shareholders of listed companies seizing PBC created serious economic consequences, including damage to the efficiency of corporate governance, affecting the performance of listed companies, occupying the legitimate interests of small and medium shareholders.Secondly, this paper created a proper model to measure the PBC in China's listed companies, on the basis of comparing the domestic and foreign measurement methods of PBC. It selected the listed companies that have transferred its controlling stake in 2006-2008 as samples to make analysis. The results showed that the average level of the PBC is 14.99%, the number in 2006 is 18.71%, dropping down to 11.75% in 2008, which illustrated with the development of capital market, and with the strengthen supervision on controlling shareholders behavior, the level of PBC has gradually decreases. But compared with other countries in East Asia or in the world else, the level is still high, so we need to do more research on it and take measures to strengthen regulation.Thirdly, this paper studied the influence factors of PBC, from the company features and internal governance structure aspects. It selected the PBC as the explanatory variables, setting the first shareholder equity ratio, capital structure, pre-management fee, proportion of tradable shares, previous level of profitability, company size and growth capacity as explanatory variables to study their effect on PBC. The studies found that previous level of profitability and first shareholder equity ratio have significant positive correlation with PBC, while the company size, proportion of tradable shares, pre-management fee are negatively correlated with PBC.Fourthly, this paper analyzed the correlation between PBC and listed companies'performance to recognize the influence of PBC on listed companies operation. In selecting corporate business performance indicators, it systematically chose 15 performance indicators in five aspects which are solvency, profit ability, growth ability, assets operation ability and cash flow condition. Then it used the factor analysis method to find out the five lifelong-learning common factors to measure firm's performance, and made a regression analysis as well as robust inspection to study the correlation between PBC and companies' performance. The study found that as the explanatory variable, the regression coefficients 't' of PBC are 2.265,2.146 and 2.326 in 2006-2008 respectively, the corresponding concomitant probability value (Sig.) were 0.030,0.035and 0.021, respectively. They all have passed the 5% significant level inspection, and the regression coefficients were-0.837,-0.638 and-0.346,which were all negative. It can be concluded that there is a negative correlation linear relationship between PBC and companies' performance.Finally, the paper constructed a tripartite dynamic game model with CSRC, small and medium shareholders and the controlling shareholders as the main body, using which to make game analysis on the regulation of PBC. Through the regulation game model it ia concluded that whether in long or short term, in order to restrain the controlling shareholders expropriation behavior effectively, two measures are needed: First, the CSCR should continue to reduce the regulatory costs. Second, CSCR should strengthen the regulation of PBC and increase the penalties for controlling shareholders expropriation behavior. On the other hand, the paper built the control regulatory optimization arrangement model to discuss how to optimize the control regulation among the shareholders, creditors, managements and generators. The Studies suggested that the control regulatory optimization arrangement depends on the relative importance of the four parties and the effectiveness of regulation. On that basis, it suggested some regulation measures on PBC from five aspects, which include cultivating the listed company control market, constructing company ownership restriction mechanism, strengthening the protection of small and medium shareholders, improving the listed companies information disclosure, establishing the five level regulatory model over the PBC.