Study On Relationship Between Equity Concentration Ratio And Firm Valuation Of China's Listed Company

With the deepening of reform and rapid development of the economy, China's stock market enjoys immense space for further development. As the footstones of the stock market, the listed companies are playing a more and more important role in China's economic growth. However, problems do exist in the progress of the listed companies. Chief among these is their lack of good performance as a whole. This problem may become a major obstacle to the healthy development of China's stock market if we fail to address it in time. To a great extent, the cause of the problem lies in the particularity of their equity structure and the consequent poor efficiency of corporate governance. Firstly, the article briefly expounds equity structure theory, and deeply analyses the relationship of ownership structure and corporate governance, pointing out ownership structure is the important actor affecting firm valuation. And then the article expounds in detail the character of public corporate equity concentration ratio in China, analyzes the inference of firm valuation from the equity concentration ratio of listed companies, and poses a concerned hypothesis. This paper mainly bases on the data of listed companies in 3 industries over the 2003 -2005 period, and uses firm valuation as dependent variable, equity concentration rate of shares as independent variables while the control variables are company's size, asset structure and the company's ability to grow. In the empirical analysis, we present a statistical description through equity concentration ratio indexes CR_I,CR₁₀,H₁₀ and Z, and use positive methods to study on the relationship between equity concentration rate and firm valuation. The main results are as follows: First, the statistical analysis shows that the most outstanding feature of the equity structure of China's listed companies is that equities are relatively concentrated to the biggest stock holders and highly concentrated to the top ten stock holder. Second, Equity concentration ratio and firm valuation present an U shape reflecting in mixing sample. Third, Equity concentration ratio results in different firm valuations reflecting difference between industries. Forth, equity restriction rate and firm valuation present bic curve shape reflecting difference between industries.Finally, in accordance with the current situation of listed companie's ownership structure, the article puts forward the suggestion of optimizing ownership structure through corporate governance: Set up appropriate equity concentration ratio based on different kind of industury; Encourage the managers to hold stock; Develop institution investors; Consummate the multivariate mechanism of internal right balance; Standardize the capital market and build efficienct legal system which to safeguard investors' interest.