Research On Controlling Rights Allocation Of Chinese Listed Companies

Since the reform of share holding system took place in China, the number of listed companies increases greatly, with the percentage of profit having decreased badly. Listed companies should be modern, but their performance was not acceptable. This call upon deeper understanding of listed companies and share holding system. In fact, clear property rights does not refer to clear ownership and corresponding earning right of enterprise assets only, but also and even more important, the mechanism of allocating controlling right that makes ownership compatible with controlling right, so as to maximize the efficiency. Problems of allocation of controlling rights in China listed companies are analyzed in this paper, with solution included.There are five chapters excluding the preface.Controlling right is part of property rights in any sense. Therefore to understand controlling right need make property rights understood. Property rights were first studied systematically by classical economists. They explained its historical role of property relationship in institutional changes. After them, research on property rights fell into two basic frameworks. One of them is ownership theory in Marxism political economics, and the other is property right theory in modern economics. Marx's property right theory was covered by his ownership theory. He had studied the general theory of ownership and those related to earth, labor and capital. His ownership theory also includes incomplete contract and controlling right theory. Controllingright is considered as a power in property rights, but there are still some debates on its detailed concept. In fact, there are at least three different controlling rights in literature. Despite different concepts, the nature of controlling right is still a power from property rights. The related benefit of controlling right and its relation with ownership are both important part of modern controlling right theory.The practice of other countries will be discussed in the second chapter. The first is how allocation of controlling rights in western countries evolved, with their characteristics and shortcomings. English-American model based on shareholding has the following characteristics. Directorates, on behalf of the shareholder, have the controlling right. The screening controlling right is enforced through external administration mechanism. Germany-Japan model based on creditor's rights has the following characteristics. Banks play important role of controlling the companies. At the same time, English-American model has some shortcomings. Highly-scattered structure of shareholding induces short-term behaviors of managers and weakens shareholders' screening on managers. Depending on external administration mechanism requires more liquidity of all factors. Comparatively, Germany-Japan model also has some shortcomings: Main bank system is likely to generate Bubbles Economy. The fact that juridical persons hold share each other slow the development of securities market. Shareholding structure is too stable to encourage competition promote efficiency of using and screening controlling right. Risks of some corporation may become a systematic risk. Second, some initiatives in practice of controlling right in western countries are also addressed in this chapter, which contains stakeholders involved in management, the convergence of allocation model and variance of allocation form of controlling rights. The reason for all these change are that under knowledge economy and economic globalization, the great changes of the circumstances under which firms operate require reform in firm organization, of which allocation model of controlling right is animportant part. The experiences of these reforms are summarized in this chapter, too. External administration mechanism must cooperate with the internal one. There exist more than one ideal allocation model of controlling right. The design of restraining-incentive mechanism is the core of effective allocation of controlling right. The reform of allocation of controlling right must go with the main trend of economic development.The third chapter contains analyses of current allocation state of controlling right of China listed companies. The analysis begins with reviewing the history of allocation of controlling right of China companies, and then present the current state and the problems within it. It can be found that the history of China economic reform, especially the reform of state-owned firms, is the one that controlling right was stripped out and looked for more reasonable allocation model. Allocation model in China listed companies is identified as highly-centralized or one strong stock, thus different from any one of English-American model and Germany-Japanese model. Compared to companies of other countries, China listed companies have relatively smaller internal funding. Through analyses of the relationship between the main stakeholders and of how they get their benefits and behavior characteristics, the characteristics of allocation structure of controlling right in China companies are the following: 1. the management are controlled by government either directly or indirectly; 2. controlling shareholders controls the management directly; 3. the management has insider control. Besides, the relationship between the four main stakeholders is really very complicated. Inside each stakeholder group, the relationship is not only complicated, but also unstable and contradicted. So there are really some serious problems existing in our allocation of controlling right: insider control, super-control of controlling shareholders and the overlap of the two and virtualization of screening right.The allocation mechanism of controlling right will be analyzed in chapter 4. We focus on explanation of the current state of allocation of controllingright. The allocation mechanism of controlling right is how it is determined. The transfer of controlling right can be divided into two categories according its level: the first exist when directors give up some of their controlling right to managers while the biggest shareholders remain the same. The second exist when the controlling right was transfer to new management. The internal allocation mechanism is connected with the first while the external is connected with the second. The first is based on directors' screening on managers which is the core of internal allocation mechanism. The second exceeds the border of the firm and is the result of transaction of controlling right, thus external allocation mechanism constitutes the core. It has been found that allocation mechanism in China listed companies do not function at all. Directors are not independent and therefore not able to inspect managers effectively, with controlling right transferred inefficiently. The facts that price cannot be found out in securities market, and most of the securities cannot be traded in market, and transactions of controlling right are not regulated, are the reasons for inefficiency. In all, this malfunction makes allocation of controlling right in a very bad state.Corresponding policy suggestion at different levels will be developed in chapter 5. The following are the policies to complete the internal mechanism. First, to complete shareholder meeting institution, the accumulating voting, voting credit and classified voting must be developed. Second, a series of institutions about directors must be constructed and completed. 3. Strengthen cooperation and coordination between directors and inspectors. The following are the policies to complete the external policies. First, push the reform of state-owned firms and get residual controlling right and claim right of state-owned assets together. Thus the responsibilities correspond to benefits. Second, solve the shareholding split problem under fare conditions. Third, develop manager market. Forth, modify current laws and regulations in order to make them compatible with each other. For those unregulated, new regulations should be added.Major innovations are summarized as the following:1. Property rights can be decomposed into two categories. Property rights are always regarded as a complex right bundle. But these rights are closely connected. So they are classified into two categories. One is around the benefit from property rights, and the other is around the power of property rights. Thus controlling right is just the power of property rights.2. The shareholding structure and asset structure are analyzed in this paper, as well as different behavior characteristics of different stakeholders and allocation mechanism of controlling right in listed companies. Thus the basic characteristics and major problems of controlling right structure can be found out.3. Analyses on controlling right of listed companies does not include current state only, but also how it is formed. Dependent directors, malfunctioning pricing mechanism and large proportion immobile share are the main reason of inefficient allocation.4. On the basis of through research of controlling right allocation in China listed companies and experiences from other countries, policy suggestions are provided from two different levels.5. This paper, which contains research on China's listed companies through controlling right, can certainly accelerate China's state-owned enterprise reform due to the fact that state-owned share has absolute ratio. Therefore policy suggestions in this paper also general significance to the reform. In some sense, a new way of deepening the reform has been developed through the controlling right.