Ultimate Controller And The Choice Of The Capital Structure

Berle and Means first defined the ownership and the control right in their classical work, Modern Corporation and the private in 1932. They thought that in America, the ownership of the capital was divided among the investors, while the control right was acquired by the managers. Thereafter, many researches were under this hypothesis. However, from the 1980s, more and more researches showed that this is not a common hypothesis and a lot of researchers found that there was a phenomenon of controlling shareholder, even an absolutely controlling shareholder in many corporations, and the high-devised corporations remained only a few fractions. Therefore, there was a thorough change of the hypothesis of the financial theory. And from then on , there were a lot of researches about the benefit that the controlling shareholder expropriate the minor shareholder. So, is the controlling shareholder the defect of the corporation governance? The research of La Porta(1999) showed that there was a phenomenon of ultimate controller of the corporations in most of the countries and the ultimate controller controlled the corporation by pyramids-shareholdings or cross-shareholdings and the characteristic was a deviation between the control right and the cash flow right and La Porta(1999) also showed that owing to the unhealthy system of law, in these east-Asian countries, the phenomenon was more common.This paper intends to reveal the situation of the ultimate controller of Chinese corporations and the relationship between the choice of capital structure and the ultimate controller by the studying of the Chinese listed companies. And the conclusions are useful, first, this paper suggests this phenomenon is due to the unintegral of the contract, which leads to the residual control right used by the ultimate controller. Then, from the data of the listed companies, there is indeed a phenomenon of ultimate controller in our country and the ultimate controller takes use of the equity non-dilution effect to choose the capital structure. Moreover, the structure of the board and the characteristic of the ultimate controller also contribute to the choice of the capital structure.