Balance Power Of Multiple Large Shareholders

Using the data of China's listed corporations with the ownership structure of multiple large shareholders during 2003-2004, this paper investigates the effect of control contestability among large shareholders on the ultimate controllers' activity and the operating performance, as well as the differences of the effect of balance of power on the operating performance. The findings in this paper show that the distribution of voting rights among large shareholders has a negative effect on firm value, which suggests that high control contestability reduce the firm value. The more concentrated of the multiple large shareholders' ownership, the higher marginal cost of the ultimate controllers' tunneling of the firms, which restricts the ultimate controllers' incentive for private benefits of control, thus the concentration of ownership structure of multiple large shareholders has a positive effect on the operating performance. When the identity of multiple large shareholders is different, the control contestability is strengthened, thus the monitoring incentive of other large shareholders on the ultimate controller surpasses the coalition incentive, which has a positive effect on the operating performance. Also, when the ultimate controller has higher cash flow rights, the cost of the expropriation of the corporations' resources by means of tunneling etc. is higher, thus the ultimate controller has incentive to enhance the companies' operating performance.