The Impact Of Controlling Shareholders' Ownership Transformation Change On Firm Performance

Ownership is the premise and foundation of market economy,and it is the combination of property(assets)and rights.Enterprise is a bundle of ownership,the property is an enterprise's productivity,rights of the property are production relations.In a certain property conditions,the arrangement and adjustment of ownership structure will bring incentive and restraint effects to the enterprise.According to the Coase theorem,the optimal scale of enterprise is the point when the enterprise cost equals to the market cost.Thus,the enterprise theoretical research for a long time focuses on the reduction of internal transaction cost and expanding the scale of enterprise.One of the important ways to reduce the internal transaction costs is optimizing the structure of ownership so as to improve the corporate governance structure and the efficiency of enterprise internal coordination.Thirty years of economic reform in China has been focused on the adjustment of the ownership relations,namely the choice of enterprise ownership system and appropriate incentive mechanism.Based on the Theory of the firm,Property rights theory,Contract theory as well as the Corporate governance theory,this paper discusses the relationship between ownership structure changes of Chinese listed companies and firm performance.In the process of research,this paper uses sample data on China's A-share listed companies between 2003 and 2015,and conducts descriptive statistics,Pooled OLS regression model,static and dynamic panel data analysis as well as the comparative analysis of single and multi sample test.The major purpose is providing a new focus on the relationship between ownership structure and firm performance.The main research ideas and results are as follows:First,the theoretical model is analyzed on the basis of classical literature of enterprise ownership and its change.Business capital is derived from the shareholders,and different shareholding shows that the shareholders face various capital markets,thus there exists different checks-and-balances and game relation which makes the capital pricing is not the same.When the capital market is a perfect competition market,the rights of control and management are passed into the managers' hands.When the capital market is an imperfect competition market,the largest shareholder has more control than his cash flow right to compensate for the capital pricing.Thereis a mutual connection and restriction relationship in the ownership structure.It can be concluded by the capital pricing model that the optimal ownership structure is the mode that the largest shareholder hold the same shareholding as the checks-and-balances shareholders.At this point,total cost of business capital will be the lowest.Enterprise ownership chang should be a Pareto improvement process.Controlling shareholders hold shareholding for a long time and adjust their utility,the structure of ownership is gradually improved.Then,the optimal ownership structure is calculated using the sample data of listed companies.An efficient ownership structure of Chinese listed companies shall be the mode that the largest shareholder and the second to five major shareholders and six to ten major shareholders has the same shareholding.This also shows that the largest shareholder's stake is better no more than 30%.At the same time,the Arellano and Bond method is used to test the dynamic change of ownership structure data over a long time period.The results show that this process is necessary.Changes in ownership caused by the largest shareholder or other large shareholders will bring turbulence and uncertainty to the firm.It is a process to redistribute the interest pattern among large shareholders.Operation results not only confirmed the theoretical model analysis but also provided data support for the follow-up research and explanation.According to the different type of controlling shareholder's ownership change,the influence of absolute change,relative change and change hands is empirically tested respectively.And the deep reasons are furtherly explored under the premise of considering two kinds of principal-agent relationship.The impact of shareholding change on firm performance is different.In SOE,the ownership concentration change has significantly inverted U type nonlinear relationship with firm performance.The largest shareholder increase shareholding will decrease performance.Performance will be improved when the shareholding is reduced in a certain range,and obviously be decreased when beyond this range.Increasing checks-and-balances is significantly not conducive to firm performance as it will affect control allocation between the largest shareholder and other large shareholders in the short term.In private companies,the impact of these changes to performance is very limited.As both “entrenchment effect” of control and “incentive effect” of cash flow right are existed at the same time,the relationship of two rights separation and performance is weak.Statistical result shows that change in two rights separation is affected only by the largest shareholder's shareholding.The largestshareholders have more incentive to get more control when they have more shareholding,thus exacerbate the separation of ownership and control.Increasing separation of two rights is more likely to happen in the company that the ownership concentration is higher.Relative changes of the largest shareholder's ownership considering both concentration and check-and-balance degree bring different influence on performance in state or private enterprise.In private companies,the impact on enterprise performance is very limited.In SOE,both increasing and decreasing relative ownership of controlling shareholder will reduce enterprise performance in the short term,and the bigger the changes,the greater the damage.After further analysis,it is found that the negative effect on the corporate performance will be relieved when the controlling shareholder's relative ownership is reduced in the SOE which ‘Tunneling'effect is serious.The relief comes from constraints of other big shareholders on the controlling shareholders.When the largest shareholder change hands their ownership,the influence of private ownership transfer to other private or state-owned ownership on performance is limited.But the transformation from state-owned ownership to other state-owned or private ownership can improve enterprise performance.Further analysis found that the improvement of performance is due to the relief of the largest shareholder's‘Tunneling' and insider control when the ownership is transferred to private ownership.However the improvement of performance comes only from the relief of insider control when the ownership is transferred to other state-owned ownership.In addition to reducing the largest shareholder's ownership step by step to promote the reform of SOE,it may be more effective to transfer the largest shareholder's ownership to others in the SOE in operational and financial troubles.Finally,policy meaning of the research are summarized with above research results and findings,and policy suggestions are put forward for the ownership reform of SOE in China.Then,the deficiency and further research direction are pointed out.