Ultimate Ownership Structure,Institutional Environment And Financing Structure Adjustments

Since reform and opening up, private economy has made rapid development. In recent years, the contributions of private economy to technology innovation, GDP growth and employment are far more than state-owned enterprises (SOE). For stae-owned enterprises, despite the establishment of State Assets Management Committee (SAMC) partly solves the problem of sponsor. However, because ultimate controlling shareholder (SAMC) of SOE is not the ultimate principals, so it does not have a legitimate residual claim although it has own effective control. The mismatch between residual claim and control right will not only lead to low operating efficiency, but also result in the serious loss of innovation efficiency because of the serious separation between innovation usufruct and control right of innovation during executives of SOE are in office (Wu,2012). For private enterprises, ultimate controlling shareholders not only grasp the actual control right, but also have the legitimate residual claim. So the higher operating efficnecy and innovation efficiency can be guaranteed. During the period of innovation, ultimate controlling shareholders of private enterprises may assign partial ownership to the executives through equity incentives, option incentives and deferred bonus incentive mechanisms, which will make them to enjoy innovation benefits by encouraging the executives to innovate positively. Therefore, the research of ultimate ownership structure in private enterprises has stronger practical significance than that of SOE.The residual cliam (cash flow rights) of ultimate controlling shareholder is consistent with control rights in private enterprises partly, but not exactly the same. The consistence between cash flow rights and control rights will enhance the synergy effect between ultimate controlling shareholders and minority shareholders, and the agency problems are eased, thereby increasing corporate value. And the separation of control rights from cash flow rights is the origin which gives rise to the interest conflicts between ultimate controlling shareholders and external investors. It will enhance the plunder incentive of ultimate controlling shareholders, thereby prompting agency cost and decreasing corporate value. Meanwhile, previous studies mainly analyze the relationship between ultimate ownership structure and financing structure choices from static prospective (Xiao,2011; Xiao,2012; Xiao and Liao,2012). However, the financing structure decisions is essentially a dynamic process, only dynamic analysis can reflect the dynamic adjustment process of financing decisions. While previous researches can’t clarify out the relationship between ultimate ownership structure and financing structure dynamic adjustment. Therefore, carrying out analyzing the relationship between ultimate ownership structure and corporate financing structure dynamic adjustment (including target financing structure and adjustment speed) has important theoretical and practical significance, especially for private listed companies.In recent year, the researches how institutional environment affects corporate financing structure choices attract the broad concerns in academic community. Many multinational studies reveals the impact of the particular institutional environment on corporate financing structure choices (Rajan and Zingales,1995; Demirguc-Kunt and Maksimovic,1998,1999). However, applying the financing structure theories that are developed in developed institutional system to private enterprises directly may be not appropriate. As Barclay and Smith (1999) mentioned, in the financing structure field, the most important things are presenting the presumptions which is close to the reality and designing the efficient empirical model, thereby finding the core elements drive corporate financing decisions combined with the corporate financing institutional eniroment. Now, China is in a period of economic transition, there is a specil system background. Such as unique ownership structure, poor investor protection, imperfect market, serious government intervention, and backward financial development level. In China, there are considerable differences in local government regulation, government intervention in business credit culture, product and factor market, financial development level and legal institutional environment in various provinces, autonomous regions and municipalities (collectively referred to as region). These will provide the scare opportunity to investigate the relationship between institutional environment and corporate financing choices. In recent years, the relevant government sections have actively developed debt financing instruments, including corporate bond and enterprise bond, which provide the research condition for financing structure problem, especially debt maturity structure issues. And in the special institutional environment in China, there are many problems associated with corporate financing, such as ultimate controlling shareholders will adjust corporate financing policy to enhance entrenchment effect based on self-interest, plundering the wealth of external investors and acquiring private control benefits, thereby influencing target financing structure decisions and transaction cost in adjusting financing structure (adjustment cost). Therefore, clarying out the relationship among ultimate ownership structure, institutional environment and corporate financing dynamic adjustment (target financing structure and adjustment speed) has important academic value.Overviewing the existing literature, there are not any literatures which analyze corporate financing structure dynamic adjustment through the combination of ultimate ownership structure with institutional environment by now. Therefore, this study will provide the useful extension and complement to financing structure research. Based on the relevant carding of theoretical and empirical literature about financing structure, in the guidance of dynamic tradeoff theory, this dissertation firstly constructs the financing structure dynamic adjustment model combined with the institutional environment in China, then analyzes deeply the impact of agency conflicts between ultimate controlling shareholders and external investors and institutional environment on target financing structure and adjustment speed. Specifically, this dissertation is divided into six chapters. Chapter1, introduction. This chapter discusses the research background, research significance, the main contents, framework, and research method. The definition of key terms is also given. Chapter2, review of financing structure literature. This chapter is divided into four parts:The first part, capital structure theoretical literature review; The second part, capital structure empirical literature review; The third part, debt maturity structure theoretical literature review; The forth part, debt maturity structure empirical literature review. Chapter3, analysis of the financing system of capital market, financing system of bank loan, investor protection and process of marketlization in depth. Chapter4, analysis of how ultimate ownership structure and institutional environment affect capital structure dynamic adjustment. Chapter5, analysis of how ultimate ownership structure and institutional environment affect debt maturity structure dynamic adjustment. Chapter6, conclusions and prospects. Based on the empirical analysis, this chapter summarizes the main conclusions, and refines the innovations, then presents policy recommendations in terms of relevant research findings, lastly analyzes the limitation in this paper and future prospects.The main conclusions are as follows:(1) For Chinese private listed companies, the higher of separation between cash flow rights and control rights (the separation) of ultimate controlling shareholder, the higher marketization degree of the area which the company locate, the target debt level will be higher. And good institutional environment will weaken the positive correlation between the separation and target capital structure.(2) The higher the ultimate controlling shareholder’s cash flow rights, capital structure adjustment speed will be faster; The higher pyramid layers and the separation of the ultimate controlling shareholder, capital structure adjustment speed will be slower; In the regions which have higher marketization process, the adjustment cost will be lower, thus generates faster adjustment speed.(3) When the endogenous dependency of target debt maturity on capital structure is not considered, the higher the separation, the target debt maturity level will be lower. When the endogenous depency is considered, the negative correlation between the separation and target debt maturity level is not significant. Wheterhe or not considering the endogenous dependency, in the area which have better institutional environment, lower debt maturity level will be chosen.(4) Whether or not considering the endogenous dependency, the separation and institutional environment are positively correlated with adjustment speed of capital structure.