The Influence Of Marketization Process And Ownership Structure On Tunneling

The separation of ownership and management brings Agency Theory. They have different aim. The owners pursue the largest corporate value; the managers hope to get more consumption and leisure time but not the largest corporate values. So agent has moral hazard. The resent research indicated that the company's ownership structure is dispersive in many countries, the ownership scattered in the hands of many small shareholders. Any shareholders did not have enough incentive to supervise managers. The'free-rider'behavior of all shareholders led the manager become the real controller of the company, they damaged the shareholders'interests by virtue of the control right. Concentrated ownership in a certain extent can avoid the spread of'free-ride'behavior. But when the majority shareholder controlled the company, their selfish nature and opportunistic behavior may also look for the opportunity to expropriate the company's overall interest. The majority shareholder did not play the role of supervising the managers. Moreover, they expropriated small shareholders in various ways, and became'grab hands'. Recent studies have indicated not only the traditional agency theory describes the occupation of the interests of shareholders and managers, but also the tunneling of controlling shareholders of listed companies and small shareholders.The development of law and finance explains the different depth and breadth of equity market in different countries, external legal system for the investor protection is a decisive factor in the level of the financial market. The higher level of investor protection will lessen the tunneling, and increase the enterprise value. China's securities market is an emerging market. It has taken root in the transformation of the China economy. Dual characteristics lead the government's actions have a major impact on the allocation of resources in China's securities market. In the past, the corporate governance noticed the internal control structure, ignored the outside government environmental analysis of the listed companies. This paper based on internal and external governance structure to study the tunneling of controlling shareholders. We selected ownership structure as the internal structure, used the China's regional marketization index which computed by Fan Gang and Wang Xiaolu to substitute the external government environmental.The second part reviewed the literature. Previous studies mostly concerned the relation between ownership structure and corporate performance, there is a few paper of ownership structure and tunneling. The existing literature about the ownership structure and the corporate performance is rich, but they fail to achieve the same results, this paper study the impact of the tunneling more direct. Furthermore, the study shows that the external economic and legal environment will play a certain role in the protection of investors.The third part expounded the theory and listed five assumptions : H1: The relationship between controlling shareholder and tunneling is "U"– type; H2: The correlation between ownership convergence and tunneling is positive; H3: When the controlling shareholders are state-owned, the tunneling is bigger than non-state-owned enterprises; H4: The correlation between tunneling and the region's marketization is negative; H5: When the ownership structure is similar, regional marketization will restrain the tunneling.Part IV first introduces sample selection. We selected only to issue A shares of listed companies in Shenzhen and Shanghai stock market from 2002 to 2005. After a series of omissions, we reached the final 4,529 sample companies. Second, designs variables, occupying indicators (Tunneling) equals to the ratio of other receivables and total assets; with the largest proportion of shareholding, shares concentration, controlling shareholder equity to measure governance; Fan Gang index used to characterize the external environmental management; and adding size, leverage and annual dummy variables as control variables. Then devises seven model to prove the hypothesis at last.The fifth is empirical analysis. We used descriptive statistics, analysis and regression analysis and received the following conclusions: Tunneling and the largest shareholder's equity proportional are significant negative in a level of 1%; Tunneling and the square of the largest shareholder's proportional are significant positive in a level of 1%; Tunneling and HF 2? 5 are significantly positive in the level of 10%; Tunneling and the nature of the controlling shareholder are significant positive in a level of 1%; Tunneling and the marketization process are significantly negative in the level of 10%; considered equity structure and the marketization process, under the same ownership structure, high marketization will decrease the tunneling. All the results are according with the assumption.We gained conclusion at last. We should not only improve firm's internal governance, but also strengthen the external market reform approach to reduce the tunneling and protect small investors. The one hand, we should reduce the proportion of state-holding, improve corporate shares and the public shareholding, reduce the concentration of ownership of listed companies to enhance the limit of small and medium shareholders of the largest shareholders; Second, we should improve the internal control systems, such as installing independent directors, increasing the proportion of outside directors. Third, we should strengthen supervision and accelerate the process of regional marketization, improve the relationship between the government and enterprises.