A Study On Impacts Of Characteristics Of Pyramid Control Structure On Behaviors Of Ultimate Controlling Shareholder

Chinese listed companies generally have ultimate controlling shareholders and the pyramid control structure is an important way to control the company and obtain benefits for the ultimate controlling shareholder. The characteristics of pyramid control structure, ultimate control right, cash flow right and the separation of ultimate control right from cash flow right, determine the differences of voting right, income right and private benefits of ultimate controlling shareholder. Thus, the characteristics can influence the behavioral orientation and have significant governance effects. Because of the complexity and imperceptibility of the control chains in the pyramid control structure, the behaviors of ultimate controlling shareholder are invisible, which further aggravates the tunneling of ultimate controlling shareholder under high concentration of ownership structure. Futhermore, the multiplicity and redundancy of the control chains, which combines with the institutional background of the absence of the owners in state-owned enterprises, give rise to lack of monitoring managers by ultimate controlling shareholder and weaken the effectiveness of managerial ownership incentive. Moreover, the interest conflict between ultimate controlling shareholder and employees in the process of property right change highlights the importance of benefit allocation to employees. Based on the problems above, it is urgent to study the impacts of characteristics of pyramid control structure on behaviors of ultimate controlling shareholder in theory and practice, and it has a significant meaning of guidance to consummate the supervision mechanism for listed companies, improve the efficiency of corporate governance and deepen the reform of state-owned enterprises.On the foundation of surveying the relevant theories of shareholder behavior analysis, the dissertation summarizes and reviews relevant literatures of the shareholder behaviors under different ownership and control structures. On the dimensions of company, manager and employee, the dissertation selects three research issues that are tunneling or propping companies, monitoring managers and benefit allocation to employees. According to the problems above, the dissertation studies the impacts of characteristics of pyramid control structure on behaviors of ultimate controlling shareholder by establishing logical links among characteristics of pyramid control structure, behaviors of ultimate controlling shareholder and consequences of the behaviors. The research hypotheses are proposed by theoretical analysis. Furthermore, three corresponding theoretical models are constructed in each dimension and panel data models are established to have empirical analyses by the data of manufacturing companies listed in China from2003to2007. On the foundation of the empirical results, the dissertation constructs an integrative theoretical model of impacts of pyramid control structure’s characteristics on behaviors of ultimate controlling shareholder.Through the research process above, the conclusions are obtained as follows.Firstly, on the company dimension, the tunneling and propping of ultimate controlling shareholder can be altered by ultimate control right, the type of ultimate controlling shareholder and separation of ultimate control right from cash flow right. The dissertation extends the viewpoint of tunneling from the separation of ultimate control right from cash flow right and expands the connotation of propping to a long-term positive governance behavior. The impacts of pyramid control structure’s characteristics on tunneling and propping of ultimate controlling shareholder are reflected by analysing the relationship between ultimate control right, the separation of ultimate control right from cash flow right, the type of ultimate controlling shareholder and firm’s total factor productivity. The empirical results indicate that the interest-driven orientation of ultimate controlling shareholder is affected by the level of ultimate control right and separation of ultimate control right from cash flow right, which leads to the difference of tunneling and propping of ultimate controlling shareholder. Moreover, the type of ultimate controlling shareholder can modify the threshold of ultimate control right that causes the transfer from propping to tunneling.Secondly, on the manager dimension, cash flow right and the separation of ultimate control right from cash flow right have significant impacts on monitoring managers by ultimate controlling shareholder. The dissertation opens up a new aspect of studying monitoring. On the base of elaborating the agent problem between ultimate controlling shareholder and managers of listed companies and the effectiveness of managerial ownership incentive, the influences of pyramid control structure’s characteristics on monitoring are studied by comparing the positive intervals of the relationship between managerial ownership and firm’s total factor productivity under different levels of cash flow right and the separation of ultimate control right from cash flow right. The empirical results show that the monitoring of ultimate controlling shareholders can be prompted and the agent cost is reduced in a relatively high level of cash flow right or a relatively low level of the separation of ultimate control right from cash flow right. It improves the effectiveness of managerial ownership incentive.Thirdly, on the employee dimension, ultimate control right and the type of ultimate controlling shareholder can impact the benefit allocation to employees. The benefit sharing and interest conflict between ultimate controlling shareholder and employees are studied by analyzing production function. The level of benefit allocation to employee is measured by the ratio of capital to labour inputs. Therefore, the dissertation investigates the benefit allocation of ultimate controlling shareholder by testing the relationship between ultimate control right, the type of ultimate controlling shareholder and the ratio. The empirical results demonstrate that ultimate control right have a positive impact on the benefit allocation when at a relatively low level. However, the effect becomes negative when at a relatively high level. Besides, the level of benefit allocation of government is significantly higher than that of family or individual.