Pyramidal Shareholding Structure And Firm Value

As the private sector of China develops rapidly, more and more private enterprises successfully come into security market. After examining the ultimate ownership structure of China private listed companies, the paper finds that the pyramidal shareholding structure is prevalent in China security market. Some entrepreneurs control more than one listed company and forge them into several clusters in the market by pyramidal shareholding structure. Along with some scandals of private listed company clusters are reported recently, more and more scholars pay attention to the pyramidal shareholding structure and investigate it.Based on the fundamental theories of pyramidal shareholding structure, this paper makes a theoretic and empirical study on the relationship between the pyramidal shareholding structure and firm value of China private listed companies. To begin with, this paper systemically reviews the foreign and domestic researches on pyramidal shareholding structure. This paper introduces the research results on the empirical evidence of the pyramidal shareholding structure, the emerging condition of the pyramidal shareholding structure and the influence of the pyramidal shareholding. Based on the models of foreign scholars, the paper theoretically analyzes the impact of pyramidal shareholding structure on firm value, as well as the relationship between the ratio of cash-flow right over control right and the specific characteristics of the company.In the following part, this paper describes the present conditions and the distributing characteristics of the pyramidal shareholding structure in China private listed companies. In the empirical section, the paper researches the impact of the cash-flow right of ultimate owner and the separation between cash-flow right and control right on firm value, using the empirical data of China private listed companies in 2005.The results of the empirical analysis indicate that the pyramidal shareholding structure is very common in China private listed companies. With the increasing of the control chain, the separation between cash-flow right and the control right becomes more and more strong. Taking the pyramidal company into account, the paper finds that the firm value increases with the cash-flow right of the ultimate owner, consistent with a positive incentive effect. But the firm value falls when the degree of the separation between cash-flow right and control right increases, consistent with an entrenchment effect. The paper also finds the asset size; debt ratio and the holdings of the first shareholder are related to the firm value.