Balance Mechanism Of Shareholding And Corporate Valuation

Recently, the research of ownership structure becomes the focus of corporate governance. Rational ownership structure is the basis of perfecting corporate governance and it conditions the development of stock market. Maximizing corporate valuation is the target of financial management. Generally speaking, the important method which can increase the corporate valuation is the rational ownership structure. The ownership structure in Chinese public corporations shows two sides: concentrated one and dispersed one, while the different shareholders have distinct targets. Chinese public corporations are faced with complicated agent problems. Excessively concentrated ownership structure may cause that controlling shareholders expropriate minority shareholders, while dispersed ownership structure may led to opportunism behavior,which makes shareholders lack incentives to monitor and the manager may ignore the basic benefits of shareholders. Therefore the reasonable ownership structure is the foundation to solve this series of problems. The power balance with ownership structure is that rights of control are shared by several block holders and none of these block holders can singly make decisions by this system of internal control. It becomes mechanisms with which block holders can monitor each other. The power balance with ownership structure is mainly aimed at decreasing the private benefits of control and protecting the minority shareholders.Based on the concerning literatures, the author use a method combined the normative analysis and the empirical analysis to make a study of the relationship between balance mechanism of shareholding and corporate valuation. In order to find whether balance mechanism of shareholding is one of the optimal ownership structures or not, this paper focus on this relationship. It consists of the following six parts: Chapter one is introduction. The research background, purpose and the main contents are discussed.Chapter two summarizes the previous research. This section surveys the research of ownership structure, the theoretical mode and the empirical analysis by foreign scholars. The theoretical research continues a large literature on the efficiency of monitor, private benefits of control and competition based on control rights. In addition, some empirical researches provide the evidence of balance mechanism of shareholding in close corporation. As it turns out, most studies find that there is association between shareholder structure and corporate valuation, but foreign scholars are not in agreement on this association. Chinese stock market and ownership structure are different from other countries. Social environment for the legal system, political factors and economic background of transformation can affect the balance mechanism of shareholding. In the meanwhile, the separation of stock market and ownership structure make this research more complicated and the conclusions are diversified.Chapter three is theoretical analysis. It includes the theory of corporate valuation, the securities markets are not fully efficient, the agency theory between the block holders and minority shareholders and the relationship between private benefits of control and entirety return of corporations. The balance mechanism of shareholding is based on that the securities markets are not fully efficient and the residual rights of control and residual claims which are decided by the incomplete contracts of the firm. The reflecting function and correcting function of the securities markets are significant to corporate governance. Researches show that Chinese stock markets are not fully efficient. The residual rights of control and residual claims are asymmetric, which leads to the agency problem between block holders and minority shareholders. So, we need moderate ownership concentration and design a shareholder structure which has power balance with several big shareholders. The core hypothesis of balance mechanism of shareholding is that the private benefits may cause damage to companies. Block holders are self-interested and do not necessarily aim to maximize firm value. Because they have the right of control and information advantages, they have the chance to give up the value-maximizing aim of firm and satisfy their interests. Private benefits based on right of control, therefore, can be realized.Chapter 4 presents the research methods. The sample includes the Chinese public companies which issue A shares. It chooses the financial index and stock index from 2000 to 2005. All the samples fall into three parts: unilateral control type, sharing control with multiple large shareholders type and dispersed type. Tobin's Q can reflect the future value of companies and intangible assets as well. Considering the actual conditions of china, this paper computes Tobin's Q to measure the corporate valuation and adopts Z index, Top index, OI index and Herfindal index as variables. In the view of company's growth, it uses three models to present the relationship between ownership and valuation.Chapter 5 presents the empirical results and preliminary analysis. Firstly, it makes independent samples T tests to compare the means between different types. They try to describe the diversity of the corporate valuation of unilateral control type, sharing control type and dispersed type. And then it shows the results of bivariate correlate. The Pearson correlation coefficients present the correlation of Tobin's Q, Z index, Top index, OI index and Herfindal index. In the end, three regression models are established, they analyze the affection of Z index, Top index, OI index and Herfindal index to the corporate valuation.At last, it is conclusion and suggestions. According to independent samples T tests, the corporate valuation of sharing control type is higher than unilateral control type and dispersed type. The balance mechanism of shareholding is relatively effective. The results of regression analysis provide the evidence that the largest shareholders who are monitored by the other large shareholders better, the corporate valuation is higher; if the largest shareholder and other larger shareholders have the similar background, the corporate valuation is higher; if the distribution of shares is even, the corporate valuation is higher; if the competition of right of control is more violent, the corporate valuation is higher. On the basis of empirical research, this paper argues that ownership structure must adapt to the economic environment; we could decrease the proportion of state-owned shares and increase the proportion of shares of corporate representative; keeping the shareholders identical in character would be beneficial to increase the firm value; perfection of the securities market laws and strengthening the protection of minority shareholders may make them more incentive to take part in corporate governance, which can increase the firm value; we ought to promote that more and more investors participate in the competition of control and developing the institution investors. At the same time, there is some limitation in this paper. For instance, this paper doses not consider the endogenous problem of shareholding structure, choose the single index to measure the corporate valuation and neglect the external corporate governance mechanisms. However, government's behavior will greatly affect the corporate valuation in our country...