Institutional Environment, Corporate Governance And Private Benefits Of Control

The Controlling shareholders of listed companies in China often expropriated the interests of other shareholders. This paper studied the size of private benefits of control, the impact on company performance and the inhibitory effect which corporate governance played on private benefits of control.Based on the data about negotiated trades of control occurred in China over period 1998-2007, this paper estimated the block premium of China's listed companies, and use the total amount of related party transaction with the controlling shareholders of listed companies and it's subsidiaries to test whether the method used in this paper is a estimation of private benefits of control. After that, this paper have studied the financial performance of these companys, and analyzed whether tunnelling behaviors deteriorated it. Besides that, this paper also researched the impact of owner structure characters, board characteristics and external governance on private benefits through regression analysis.The study finds that China's average block premium is 12.32% of the target company's net assets. With the control transferred, the related party transactions lead to tunneling increased significantly, but the financial performance of these listed companies have not continue to improved. Through the analysis of determinants of private benefits of control., the paper showed that there is a inverted U-relationship between the controlling shareholder's shareholding proportion and private benefits of control., cross-listing significantly reducing the size of private benefits of control., and the supervision of Board, the legal environment restricted the expansion of private benefits to some extent. But other maior shareholders, the independent director and circulation stock shareholders did not have great affect on reducing private benefits of control. Listed companies should pay a lot attention to their internal governance.