Ownership Structure And Firm Performance: Evidence From China's Listed Family Firms

This thesis examines the existence of agency costs in Chinese listed family firms inspired by the theoretical model of Lucian et al (1999).With the releasing regulations which allow more family firms to be listed in Chinese stock market through IPO or takeover, the number of listed family firms has been growing fast in the years. However, the family owners tend to hold the stake of the listed firms indirectly through such a mechanism as shareholding structure, which resulting in the separation of control and cash flow rights. Our research find the controlling right is very centralized. 90.97 percent of the firms'final controlling shareholders have more than 20 percent voting rights. The separation of control and cash flow rights is also very common in Chinese listed family firms. On average, the firms'final controlling shareholders have 33.41 percent controlling rights, but they only have 21.50 percent cash flow rights.In the part of literature review, the agent theory under the circumstance of dispersed ownership is introduced briefly. Then the thesis puts forward the agent problem with regard to the existence of controlling shareholders. Next the thesis describes mechanisms that enable a controlling shareholder or a group to maintain a complete lock on the control of a firm while holding much less cash flow rights associated with its equity. Also, we constructed a model to analyze the consequences and agency costs of these arrangements, and put forward our empirical study hypothesis.In the part of the empirical test, we find that the final controlling shareholder's cash flow right is positive correlated with the firm's performance and the more the controlling rights deviate from the cash flow right , the worse the firms'performance is. We also find the restriction of other shareholders on the final control shareholder will improve the firm's performance.