Governance Environment, Characteristics Of Ownership Structure, And Private Benefits Of Control

After 10 years of development, Chinese stock market has been rational gradually. With the gradual development of Chinese securities market and improvement in efficiency, investors, creditors, securities regulators and accounting standard-setting bodies turned their attention to the second category agent problem occurred between Controlling shareholders and small shareholders, which contrast sharply with the first category agent problem happened between shareholders and managers. Major shareholders, who have the right of controlling the board and finally take control of the entire company's business activities, have the motivation and the ability to deprive interests of minor shareholders. Demand of private benefit from controlling shareholders has been confirmed by empirical data. Corporate governance structures in the context of a specific system should be an important factor in controlling private benefits, since the effective corporate governance plays an essential role in alleviating the problem of agent, improving corporate value and assessing management performance.The reform and restructuring of the shareholder structure is an important element of state-owned enterprise reform in China. For Chinese listed companies, the effective corporate governance must reflect on the characteristics of ownership structure. The research on above is the foundation of researching on corporate governance. Shareholders will have the final controlling right, and the distribution of the right bases on the ratio of funds. The right of business decisions depends on rights of corporate property which come from the Board. As an important component of corporate governance, the characteristics of ownership structure will also affect private benefits. Despite of great progress, the study overlooked environment of the corporate governance, the more important, more fundamental factor hidden the corporate governance structure. Empirical research showed that the external environment, such as marketing process, legal protection to small investors, etc., constrained the level and size of private benefits.The Split Share Structure Reform has just been completed and in a short term, the phenomenon of dominating by one stock will continue to exist. The regulatory measures and the legal protection system is not sound, the governance system is in a lower level. In this background, analysis of the impact which unique characteristics of ownership structure made on private benefits of control, have great practical significance in China. The empirical results show that good external environment of governance can inhibit the motivation and behavior of Private Benefits effectively. As the separation between cash flow right and the controlling right, large shareholders tend to seek Private Benefits. But with the percentage increasing, they will automatically inhibited demand for Private Benefits. Owing to the improvement of governance environment, effects to Private Benefits exerted by the nature of shareholders will weak. The enlightenment of results is that to improve the governance of listed companies in China, companies should better the basis of the external environment, while concerning governance structure also. According to the conclusion of the study, this paper proposed some recommendations.