Controlling Shareholders' Liquidity Constraints And Corporate Financial Behavior

This study studies the impact of controlling shareholders'liquidity constraints on corporate financial behavior by using the unique scenario of state-owned capital income collection.The Fourth Plenary Session of the 19th Central Committee of the Communist Party of China in 2019 clearly stated that it is necessary to strengthen and enlarge the state-owned capital,and the state-owned assets supervision system should be formed mainly based on the management of capital.The state-owned capital income collection system is a very important key policy.On September 8,2007,the State Council issued“The Opinions on the Trial Implementation of the State-owned Capital Operation Budget",pointing out that the state-owned capital operating budget is the state in accordance with the law to obtain state capital gains as the owner and distribute the income.The state-owned capital income in the state-owned capital operating budget can be subdivided into five categories.The largest category is the first category of payable profits.It refers to the profits that a wholly state-owned enterprise should submit to the state each year according to regulations.And the profits are calculated by the net profit attributable to the parent company and the required collection ratio in the annual consolidated financial statements.The implementation of the state-owned capital income policy of the central and local governments is different,and the requirements for the net profit return ratio are also different.The scope of the state-owned first-class enterprises that should pay net profits has continued to expand,and the return ratio has gradually increased,which provides an ideal quasi-natural experimental scenario for this paper.This paper uses the exogenous shock of central and local state-owned capital income collection on controlling shareholders' liquidity constraints to resolve the endogenous problems in the existing research on the controlling shareholders' motivation,and examines the causal relationship between the controlling shareholders' motivation and corporate financial behavior.According to the regulation,the state-owned first-class enterprises should transfer the state-owned capital income to the corresponding accounts of the financial department in time and in full,which will directly reduce their own cash assets.At the same time,many of these state-owned first-class enterprises are the ultimate controlling shareholders of listed companies,which forms the liquidity constraint of controlling shareholders for lower-level listed companies.In theory,the liquidity constraints resulting from the collection of state-owned capital income have not changed the controlling shareholder's control of the company and the cash flow right,and the controlling shareholder's ability to influence the company's financial behavior remains unchanged.However,the liquidity of controlling shareholders is reduced,and the motivation to seize the interests of minority shareholders is also enhanced.In order to obtain more cash assets to ease liquidity constraints,the controlling shareholder will put pressure on management and affect corporate financial behavior.Although in reality the liquidity constraints of the controlling shareholder brought by the collection of state-owned capital income exist and have wide-ranging influences,few studies in academia have used rigorous empirical methods to conduct systematic research,especially the lack of distinguishing the two different types of central and local state-owned capital income collection to discuss the impact of the controlling shareholders'liquidity constraints.This paper has manually collected data on state-owned capital collection from the controlling shareholders of central state-owned enterprises and local state-owned enterprises,with 2003-2018 as a sample range,and studies the impact of A-share listed companies'controlling shareholders'liquidity constraints on important corporate financial behaviors such as corporate cash holdings,earnings management,and corporate value.Firstly,this paper examines the impact of controlling shareholder liquidity constraints on cash holdings strategies.The results show that companies with controlling shareholder liquidity constraints have higher levels of cash holdings and more excess cash holdings,and compared with central state-owned enterprises,controlling shareholder liquidity constraints of local state-owned enterprises have greater impact on cash holdings and excess cash holdings.The existence of liquidity constraints on controlling shareholders will not significantly affect the cash holdings level and excess cash holdings of central state-owned enterprises,but it will significantly increase the cash holdings and excess cash holdings of local state-owned enterprises.Further,the lower level of financing constraints and the higher level of corporate governance,the smaller increase in the cash holdings level and excess cash holdings of local state-owned enterprises;as the proportion of net profit collection increases,the controlling shareholder's liquidity constraints gradually increase,and the impact on corporate cash holdings strategies is also becoming more significant;when the year in which the controlling shareholder needs to turn in net profit is the last two years of the term,the controlling shareholder needs to prepare for the term assessment,and the liquidity constraints are greater,the impact of cash holdings strategies is also more significant.Secondly,this paper examines the impact of controlling shareholder liquidity constraints on corporate earnings management behavior.The results show that companies with controlling shareholder liquidity constraints have higher degree of earnings management,and compared with central state-owned enterprises,controlling shareholder liquidity constraints of local state-owned enterprises have greater impact on the degree of earnings management.The existence of liquidity constraints on controlling shareholders will not significantly affect the degree of earnings management of central state-owned enterprises,but it will significantly increase the degree of earnings management of local state-owned enterprises.Further,the more pyramid level and the greater separation of the two rights,the greater increase in the level of earnings management of local state-owned enterprises,and the lower level of financing constraints and the higher level of corporate governance,the smaller increase in the level of earnings management of local state-owned enterprises;as the proportion of net profit collection increases,the controlling shareholder's liquidity constraints gradually increase,and the degree of local state-owned enterprise earnings management is higher;when the year in which the local state controlling shareholder needs to turn in net profit is the last two years of the term,it is more necessary to prepare for the term assessment,which is more likely to increase the degree of earnings management to improve profitability and obtain better term assessment results.Finally,this paper examines the impact of controlling shareholder liquidity constraints on corporate value.The results show that companies with controlling shareholder liquidity constraints have lower corporate value,and compared with central state-owned enterprises,controlling shareholder liquidity constraints of local state-owned enterprises have greater impact on corporate value.The existence of liquidity constraints on controlling shareholders will significantly reduce the value of entral state-owned enterprises and local state-owned enterprises,but the damage to the value of local state-owned enterprises will be more serious.Further,the lower level of financing constraints,the smaller reduction in the value of central state-owned enterprises,the more pyramid levels,the higher level of financing constraints,and the lower level of corporate governance,the greater reduction in the value of local state-owned enterprises;as the proportion of net profit collection increases,the controlling shareholder's liquidity constraints gradually increase,and the corporate value is lower;when the year in which the state controlling shareholder needs to turn in net profit is the last two years of the term,,the corporate will minimize assaults and reduce the decline in corporate value to achieve better term assessment results.The contributions of this paper are mainly reflected in the following five aspects:(1)Researching early on the real economic effect of the state-owned capital income collection on enterprises,especially measuring controlling shareholders' liquidity constraints by distinguishing the central and local state-owned capital income collection for the first time.In the background of the large number of local state-owned enterprises and the large local fiscal power in China,the impact of the local state-owned capital income collection is an important part of the systematic study of the controlling shareholders'liquidity constraints in China's capital market.There are significant differences between the central and local state-owned enterprises and the central and local state-owned capital income collection methods,so this study highlights the characteristics of the Chinese state-owned enterprises,and helps to further explore the similarities and differences between the central state-owned enterprises and local state-owned enterprises.(2)Enriching the research on the motivation of controlling shareholders from the perspective of controlling shareholder liquidity constraints.The existing research on controlling shareholder motivation mainly from three aspects,such as two rights separation degree lower or higher of the controlling shareholder,enterprise stock liquidity enhancement,and the controlling shareholder to avoid the transfer of control.However,the constraint of the controlling shareholder's liquidity is only due to the reduction of the cash assets of the controlling shareholder caused by the exogenous national policy requirements,has no effect on controlling shareholders two rights separation degree,enterprise stock liquidity and the control right of controlling shareholder.And the existing research mainly considers that shareholder incentives have a significant impact on the financial behaviors of non-state-owned enterprises,and have no significant impact on the financial behaviors of state-owned enterprises,however,this paper provides evidence for the significant impact of controlling shareholder's motivation on the financial behavior of state-owned enterprises.In addition,this paper also considers the impact of term performance evaluation on the motivation of state-owned controlling shareholders.(3)The quasi-natural experiment of state-owned capital income collection is used to solve the endogenous problem,effectively identify the causal relationships between controlling shareholders' liquidity constraints and cash holdings,earnings management and corporate value,and the impact of varying degrees of controlling shareholders' liquidity constraints on these causal relationships.Through relatively ideal research design,it provides a good reference for controlling shareholder motivation research,especially related to liquidity constraints.(4)Enriching the research on the influence factors of corporate cash holdings,earnings management and corporate value from the perspective of the controlling shareholders' motivation.Most of the previous literatures focused on the changes in the motivation of the occupation due to the increase or decrease in the separation of the two rights,and studied the impact of controlling shareholder's motivation on corporate cash holdings,earnings management and corporate value.There is little literature discussed the change in the controlling shareholder's motivation caused by liquidity constraint.(5)This paper also has strong practical significance,fully understanding the impact of controlling shareholders' liquidity constraints on corporate cash holdings,earnings management,and corporate value will help to strengthen the government macroeconomic regulation and control ability,promote the development of state-owned economy,improve the state-owned capital operating budget system,regulate the distribution relationship between the state and enterprises,strengthen the management of state-owned capital income,and achieve the important reform goals of maintaining and increasing the value of state-owned capital,and strengthening,optimizing,and expanding the state-owned capital proposed by the Fourth Plenary Session of the 19th Central Committee of the Communist Party of China.In addition,the results of this paper also have important reference significance for the government,enterprises and investors:(1)the government at all levels should determine a reasonable proportion of state-owned capital income collection,expand the implementation scope of state-owned capital operating budgets vertically,refine the disclosure of state capital operating budgets,strengthen the supervision and management of state-owned capital operating budgets,and improve and implement the state-owned capital operation budget system in a differentiated manner;(2)enterprises should focus on long-term development,increase profits and increase corporate value through positive behaviors,improve corporate governance mechanisms and information disclosure mechanisms,avoid distorting the original intention of state-owned capital income collection policies,and strive to achieve the goal of maintaining and increasing the value of state-owned capital;(3)investors should pay attention to the state-owned capital income collection of the controlling shareholder,urge the enterprise to disclose relevant information in a timely manner,fully consider the impact of controlling shareholders'liquidity constraints in the investment decision-making process,and avoid the damage to their own interests caused by the self-interested behavior of the controlling shareholder and the management.