Research On Controlling Shareholders’ Investment Behavior About Specific Assets

Whether for profitability objective (maximization of Material Benefits or profit) or non-profitability objective (economic control rights, social benefits and market share), the controlling shareholder can invest specific assets only under the premise of obtaining expected return from the listed company. Through this, the controlling shareholder can build the powerful contractual relationship. Specific assets can give security for this private order, that is the credible commitment. The controlling shareholder of the listed company invests specific assets, in one way, just as differentiated assets. In another way, the controlling shareholder’s contribution of such kind of specific assets to the listed company have generated the binding effect between the controlling shareholder and the listed company, which in turn will hinder the opportunism of the majority shareholder (i.e., the misappropriation of the controlling shareholder).Hence a situation of cooperation is created between the controlling shareholder and the listed company, which can impact corporate value. Because of the appropriable quasi-rent and incomplete Contract, asset specificity can not play its role well. This paper studies the effect of asset specificity on the corporate value under corporate governance in China.As the thoughts above, the dissertation is constituted with seven main chapters. The first chapter is the introduction which focuses on explaining the research problems from the reality, the theoretical and realistic meaning of the research and the main constructions. The second chapter is the literature review about the assets specificity, controlling shareholder’s behavior and corporate value, corporate governance and so on to form the theoretical basic for further analyze. The third chapter are theoretical analysis and hypotheses, mainly based on the basic theory of the assets specificity, agency theory, as well as corporate governance theory to analyze and put forward the hypothesis of issues such as the controlling shareholder’s motivation to invest in specific assets, the binding effect of asset specificity to control the opportunistic behavior of controlling shareholders, the relationship of asset specificity, corporate governance and corporate value. The forth chapter is the research of controlling shareholder’s motivation to invest in specific assets. Based on asset specificity, using principal component analysis to build assets specificity indicators, to measure factors that affect the controlling shareholder’s investment intensity of specific assets and to construct the corresponding model to make empirical test and the results were analyzed; The fifth chapter is the empirical test of the effect of asset specificity on the controlling shareholder’s opportunistic behavior. First, this chapter not only examines the effect of asset specificity on the controlling shareholder’s opportunistic behavior, but also consider the impact of the separation of ownership and the degree of the effect of this constraint; The sixth chapter is the empirical study of asset specificity, corporate governance and firm value (based on the controlling shareholder’s perspective), inspect corporate governance’s impact on the relationship between the controlling shareholders’ investment about specific assets and firm value of the listed company. The last chapter is the conclusion of the study. This chapter summarizes the conclusions of this study, presented some practical revelation, at the same time to discuss the limitations and future research directions of this study.The main research findings can be summarized as the following four points:1. we analyze and test the question of the controlling shareholders’investing motivation of specific assets. Firstly, there are things that have effect on the controlling shareholder’s behavior. The things are incentive effect and entrenchment effect. Secondly, the controlling shareholder can prefer to invest the specific assets under the incentive effect, as well as reluctant to do it under the entrenchment effect. The tests prove that the relationship between these two effects and the controlling shareholders’investing motivation of specific assets presents an inverted U-curve relationship. The maximum value will occur at the32.85%(controlling shareholder’s share proportion) point. At the region less than32.85%point, the incentive effect is significant.2. It is condition effect view that asset specific will have "binding" effect on controlling shareholder from the perspective of them. Investment in specific assets of controlling shareholders binding themselves to the contract with listed companies, to some extent, constrains the opportunistic behavior of the controlling shareholders. However it is not simple linear relationship between asset specificity and behavior subject, combined with the separation of the control rights and cash flow rights of listed companies in China, we study the binding effect of controlling shareholders’ interests encroachment motivation and asset specificity. As a result, the test found that the higher the degree of ownership would cause the failure of asset specificity’s binding effect.3. Empirical inspect the combined effect of asset specificity and corporate governance on listed companies. Asset specificity of controlling shareholders’force listed companies have heterogeneous capital, access to the unique and difficult to imitate market advantage. And with asset specificity’s signal effect of "credible commitment" and constraints of opportunistic behavior, the specific investments of controlling shareholder, to some extent, enhance the value of the listed companies. However, the benefit expropriation of the controlling shareholders of listed companies formed a paradox on this point. The treatise will put this agency problem in the framework of corporate governance, and make a new interpretation of the behavior of the controlling shareholders. The result shows that there is positively significant relation between asset specificity and corporate value. Moreover, the level of corporate governance in the listed company, as a moderator, can impact this relation.