An Theoretical And Empirical Analysis On The Impact Of Ultimate Control Right To Capital Structure

In 1999, La Porta proposed a new conception of ultimate control right, cause logical starting point of corporate governance occurred a fundamental change. In China, due to the late beginning of security market, and the laws on protecting minor shareholders, interests have not perfect, add to the marketing mechanism on constraint large shareholders,behaviors has not set up, lead to the phenomenon of ultimate control right and ultimate controller very common.. And cause equal stocks but dividend rights, small stocks but have big power, which led to the "tunneling effect"--transfer of assets of listed companies,and damage the interests of minor shareholders. In accordance with the thought that controlling shareholders inevitably affect the financial decision-making, ultimate control right have an important impact on financial decision-making, which reflect on capital structure decision-making. And how does it influence it? Therefore, this article hope to trace their ultimate control right from the information of listed company announcements, further study the influence to the capital structure. There is no doubt that it can effectively protect the interests of minor shareholders, improve the corporate governance mechanism, and promote long-term healthy development of listed companies, with far-reaching academic value and practical significance.In this paper, control right vacuum,free cash flow restrictions,threat of bankruptcy theories had been used to analyze the impact of ultimate control right to capital structure, and conclusions had been reached as follows:(1) Because the existing of control right vacuum, ultimate controller prior to use the non-dilution effect of equity, and avoid free cash flow restrictions effect and the threat of bankruptcy effect caused by debt financing.(2) When ultimate controller have more cash flow right,their interest consistent with minor shareholders. As the role of cost factors, and ultimate control will take the initiative to circumvent the threat of bankruptcy, and choose a lower debt ratio.(3) As the ultimate control of state-owned listed company, its mostly creditors are state-owned Big Four commercial banks. In properties, their controlling shareholders are the central or local SASAC, they belong to the State. So the lending of capital between them is only a virtual relationship, and lack of norms and constraints. Further, due to the impact of government intervention, the threat of bankruptcy effect of debt played by lots of restrictions. However, the private listed companies in opposite directions, the lending of capital between enterprise and the creditor is a real relationship, and norms and arbitration by the legal system. In addition, the Government will not intervene in private enterprises for debt-induced bankruptcy. As a result, the ultimate control of state-owned listed company has a higher debt ratio than private-owned.Meanwhile, based on the data from the 2007-2009 annual reports of companies listed in Shanghai and Shenzhen Stock Exchange markets, this paper tested the theoretical analysis by using linear regression method, and came to a conclusion as follows:(1) Ultimate control right has a significantly negative impact on capital structure.(2)Ultimate controller cash flow right has a significantly negative impact on capital structure.(3)The properties of ultimate controller has a significantly positive impact on capital structure. It means that the ultimate control of state-owned listed company has a higher debt ratio than private-owned. On this foundation, this paper proposed some proposals, such as improving regulations of capital markets, improving mechanism on information disclosure on listed companies and so on.This paper was divided into five parts, each part is as follows:Chapter 1 is the introduction, summarizing the purpose, background, methodology and the frame of this paper. Chapter 2 is consisted of the concepts and relative theories of diversification, as well as the domestic and foreign literature review. Chapter 3 analyzes theoretically the impact of ultimate control right to capital structure, and puts forward the research hypothesis. Chapter 4 analyzes empirically the impact of ultimate control right to capital structure, and tests the research hypothesis put forward in Chapter 3 using methods as descriptive statistics and multivariate linear regression analysis. Chapter 5 sums up the conclusions of this paper, brings up relevant policy-related suggestions, and finally points out the inadequateness.