An Investigation Into The Effects Of The Financing Preference Of The Controlling Shareholders Of The Listed Company

In capital circulation, the Pecking Order Theory usually gives priority first to internal pecking, then dept pecking and at last to share pecking, which has been proved by pecking practices of the corporations in advanced countries. However, the Chinese listed companies perform in a diverse way: first share pecking, then dept pecking, at last internal pecking, which shows a great preference for share pecking. This particular preference is highly related to the special share structure of Chinese listed companies. With extreme centralization of share, controlling shareholders have the decision-making authority of pecking, which enables them to adopt their pecking decision with their preference of value maximization. The author analyzes, from the perspective of a shareholder, the effects of share centralization on pecking preference of Chinese quoted companies, discusses the motivation of share centralization, and then advances some suggestions to improve the policy on the basis of empirical study.The author reviews literatures of the Agency Cost Theory,the Control Rights Theory and the Pecking Order Theory, discusses the effect that structures of mastery and management have on structure of pecking in quoted companies, which bases the analyzing after then. After analyzing the descriptive statistical data of share structure, mastery structure, and pecking preference, we make it clear that the share structure of Chinese quoted companies is a centralized one, in which, state-owned shares are in the place of controlling shareholder. This leads to the concomitance of the tow control: controlling shareholder control and internal control. The irrational preference of share pecking has many negative influences, which are discussed. Then it comes to the discussion of the motivation of the preference for share pecking, which, the author thinks, is caused by related system and policy. Precisely speaking, the inappropriate share structure, the faulty management structure, and the control of inside-company lead to a bad consequence that the control power goes to the controlling shareholders. Consequently, the control power is combined with the trend of worth maximization, which results in the preference for share pecking to increase personal income from control power. Then conclusions are made after empirical studies. Some pieces of advice are also raised in purpose of improving the policy.Base on theorized analyze of Chinese quoted companies special chare structure, the author discusses the factors that effect the preference for share pecking: share structure, share centralization, scramble for control power, inside-company control, size of company, ability of profiting. Hypothesis is raised about the relationship of the factor above. Multi-element regression model is set up after analyzing the report forms of Chinese quoted companies in manufacturing business between year 2004 and 2006. The result shows that Chinese, quoted companies pecking is highly related with the share structure , and that controlling shareholder prefers share pecking. The negative correlation ratio between share centralization and the capital debt and some shareholders' preference for share pecking may result in the opportunistic activities by the controlling shareholders. However, the positive correlation ratio between shares held by the other controlling shareholders and the amount of the capital debt is in favor of the improvement of the company's managerial structure so as to check the opportunism of the controlling shareholders. When the proportion of the state share is negatively correlated to the ratio of capital debt, the higher the ratio of the state share held by the enterprises, the greater the opportunity for their financing; whereas, the ratio of the institutional shares is negatively correlated to the capital debt, the more the institutional shares the institutional shareholders hold, the more they prefer share pecking. As a result, the profitability is obviously negative to the debt ratio. The study and analysis in this dissertation indicates that the unique complicated stock ownership structure of China's listed company exert great effects on the listed company's preference for share pecking. Therefore, we may well conclude that if the irrational preference of the listed company is to be checked, the practice of the controlling shareholders must be regulated, the stock ownership structure must be optimized and the company's management must be perfected.