Pyramidal Ownership Structure, Allocation Of Ultimate Control Rights And Corporate Performance

In modern company,ownership and control rights take place separation and control rights carry on an allocation inside the company.Under different ownership structures, control rights allocation patterns are diversified.From the aspect of ultimate ownership,the study analyzes characteristics of ultimate control rights allocation among shareholders, board of directors and management of the listed companies and the effect on corporate performance.Under pyramidal ownership structure,the ultimate controlling shareholders ' control rights to listed company take place an inflation,deviated from the theories model.The control rights inflation includes two sides.Firstly,the boundary of control rights is extended from layer of shareholders to board of directors and management and became various combination patterns of control rights allocation.Secondly,control rights to shareholders and board of directors exceed its cash flow rights.The characteristics of pyramidal ownership structure have importance influence to ultimate control rights allocation.The higher of ultimate cash flow rights,the greater of ultimate control rights. The higher of layer,the greater of excess control level.Based on the inflation of power,the ultimate controlling shareholders carry out control to the listed companies with influence on its management decision.The control rights exceeding cash flow rights promotes the ultimate controlling shareholders 'incentives to dig tunneling from the listed companies that will cause negative influence on corporation performance.Scholars call this phenomenon as Entrenchment effect.If the ultimate controlling shareholders hold ultimate cash flows rights big enough,the shareholders will use control rights to supervise the listed companies.This is helpful to improve the corporation performance.Scholars call this phenomenon as Alignment effect.The study chooses 1373 state-owned listed companies and 406 private listed companies from 2004 to 2005 as research objects and classifies them into the private listed companies, the state-owned listed companies with the index A(the ration of control rights to cash flow rights) greater than 1 and the state-owned listed companies with the index A equal 1. The research shows significant difference among the characteristics of pyramidal ownership structure of three sets of companies which results in statistically significant difference on characteristics of ultimate control rights allocation. The empirical evidence shows that entrenchment effect significantly exists in the private listed companies and the state-owned listed companies with the index A greater than 1. Especially,the ultimate controlling shareholders' excess control to board of directors has more negative effect on corporation performance.But in the state-owned listed companies with the index A equal 1,entrenchment effect doesn't exist.And alignment effect exists in the private listed companies and the index A equal 1 of state-owned listed companies,but not statistically significantly exist in the state-owned listed companies with the index A greater than 1.Theory analysis and empirical evidence indicates that how to effectively allocate control rights is becoming more and more important to modern companies.The key point is to limit the ultimate controlling shareholder's power excessive inflations and prevent from excess control.In order to solve the problem,on the one hand we should carry out the reasonable allocation of power in the company with mutually check and balance,on the other hand we should enforce supervising regulations and laws.