The Research Of Control Rights, Board Of Directors And The Cost Of Equity

Wiith the situation of concentrated ownership structure, the ultimate controller usually control the listed company by way of the Pyramid Ownership Structure, Cross-Ownership Structure and Dual-class Share Structure ,and the Pyramid ownership structure is the most common in rearlity. WIthr this situation,the company's completed ownership structure and the influence from the indirect shareholders can't be found ,if we driver the reaserch only from the view of Direct Ownership. In reality, the ultimate controller is the real owner of the company , posses the ultimate control right and decision-making power . So,we can seize the nature of the problems from the view of the ultimate controller.The Pyramid ownership structure established by the ultimate controller is very common in our country's listed companies.The typical characteristic of the Pyramid ownership structure is the separation between the Ultimate Control Rights and Cash Flow Rights, and the ultimate controller obtain more control rights with less cash flow rights , deviate from the principle of"one vote one share". Wiith the situation of separation between the ultimate control rights and cash flow rights, the ultimate controller usually obtain the private controlling benefits by ways of related transactions and loan guarantees and capital occupation,which violated the interests of minority shareholders and the company. This behavior reduced the company's value and improved the company's cost of equity capita. In addition, the different venture of the ultimate controller and the director from different ultimate controllers and independent directers Represents different interests to company, which had different influences to the company's value. The paper discusses the influence between the cost of equity and the ownership's characteristic with the board of directors'characteristic.Firstly, the paper introduces the system background of listed companies from State-owned enterprises'reform and the institutional change of stock issuing system.Then, the paper introduces the theory of he influence between the cost of equity and the ownership's characteristic with the board of directors'characteristic, and puts forward.the paper's theoretical hypothesis. Lastly, the paper tests the theoretical hypothesis with the data of samples, and ottains the research conclusions.. The paper ests the theoretical hypothesis with the data of agricultural listed companies from 2004 to 2008, and find:First.The venture of the ultimate controllers is different, the costs of equity isdifferent. The ultimate controllers with venture of govermental have lower Cost of Equity conpares to the ultimate controllers with venture of non-governmental. Usually, the former's Cash Flow Rights are higher and with low degree separation between the Ultimate Control Rights and Cash Flow Rights, so their motivation of occupying minority shareholders'interests are weak. But, the latter are with high degree separation between the Ultimate Control Rights and Cash Flow Rights, and their motivation of occupying minority shareholders'interests are strong, and they have less government protection and narrow financing channel,so their Costs of Equity are high.Second. The status of separation between the Ultimate Control Rights and Cash Flow Rights is different, the Cost of Equity is different. The separated Pyramid ownership structure's Cost of Equity is higher than non- separated Pyramid Ownership Structure. Wiith the situation of non-separated Pyramid Ownership Structure, the ultimate controller's Ultimate Control Rights is matched the Cash Flow Right, his interest objective is the same as minority shareholders, so it hao no motivation of occupying minority shareholders'interests. But, wiith the situation of separated Pyramid Ownership Structure, the ultimate controller obtains more control rights with less Cash Flow Rights, and he has motivation and be able to occupy minority shareholders'intrestes, which decreased the value of the company and improved the Cost of Equity.Third.The separation degree between the Ultimate Control Rights and Cash Flow Rights is greater , the Cost of Equity is higher. The separation degree between the Ultimate Control Rights and Cash Flow Rights is greater, and the the ultimate controller's motivation of occupying minority shareholders'interests is stronger.Fourth.The ratio of directors respected the interests of the ultimate controller and the persons in Board of Directors is higher, the Cost of Equity is higher. Wiith the situation of separated Pyramid Ownership Structure, the ultimate controller controls the Board of Directors, and obtains the decision-making power. The ultimate will deviate the company's target of profit maximization, and tunneling interests fom the company , whitch decreased the value of the company and improved the Cost of Equity.Fifth.The ratio of independent directors and the persons in Board of Directors is higher, the Cost of Equity lower. The independent director has nothing with large shareholders and minority shareholders, and the independent director also can supervise the Board of Directors and operators. So, the independent director is of great effects to the company and minority shareholders. The ratio of independent directors and the persons in Board of Directors is higher, the independence of the ndependent directors is stronger, which can improved the value of the company and decreased the Cost of Equity.By the research conclusions, we find the venture of the ultimate controller and the ownership's characteristic and the board of directors'characteristic have different effects to the Cost of Equity. So, I hope the enlightenments drived from the research conclusions can offer help to the development of our country's listed companies and capital market.