An Analysis On The Determinants Of Pyramidal Ownership Structure Of Listed Companies Controlled By Chinese Government

Pyramidal ownership structures are prevalent around the world. However, the literature concerned is very much rare. Almeida and Wolfenzon (2004) proposed a mathematical modal, which is composed of two basic theoretical questions: Why should pyramids come about and which factors influence them. Morck, Wolfenzon and Yeung (2005) supplemented another theoretical question, which is about the economic implications of pyramidal ownership structures, and which makes the theory of pyramidal ownership structures better. We hope to present an empirical evidence to answer the second question.This paper examines the determinants of pyramidal structures of 826 government controlled listed companies from Shanghai and Shenzhen stock exchange markets in the year 2004. We conclude the features and possible determinants of pyramidal structures on line of research proposed by Berle and Means (1932), La Porta et al. (1999), Bebchuck et al. (2000), Almeida and Wolfenzon (2004), Morck, Wolfenzon and Yeung (2005) and Stenvall (2006). Our results show that, on firm level, performance, growth and governance strongly and significantly affect the pyramidal structures of state owned companies, while firm size and financial leverage do not; on institutional level, the degree of the marketization and government intervention, and legal environment of provinces in which the companies are listed, all have remarkably significant influence on pyramidal structures. But the conclusions are weakened when industry variables are taken into account. Our results might be biased in that the relationship between ultimate shareholders and institutional variables are ambiguous. We then take tests of robustness in order to confine this unfavorable effect. The new results are just like the images of regression results, which indicates the stability of our results. Corporate governance must function as a signal to facilitate the capital market to identify the quality of the pyramidal ownership structures, and our data support this hypothesis.