Ownership Structure, Firm Performance And Financial Behaviors

With the complication of economic environment and the development of the modern enterprises, corporate governance becomes a hot topic in both theory and practice. The ownership structure makes significant impact on companies' internal and external governance mechanisms. Shares of listed companies in China are highly concentrated in the largest shareholders. Because of this special ownership structure, the role played by the largest shareholders in corporate governance becomes one of the core issues of academic concern. Apart from the largest shareholders, there are also some other blockholders. They may behave differently from the largest shareholders. This paper specially does a research on these shareholders.The non-financial companies listed in Shanghai and Shenzhen exchanges are selected as samples, from year 2002 to 2006. Based on the endogenous assumption of ownership structure, this paper systematically studies the effects on company's performance and financial behaviors made by the largest shareholders and other blockholders of the company. The article first introduces the important concepts and the structure of the whole essay, and reviews the relevant literatures. Then, the assumptions are proposed, the empirical testing is done under the exogenous and endogenous assumptions of ownership structure with panel data and the explanations are provided. Finally, the paper summarizes the main conclusions, and puts forward a few recommendations correspondingly.The main conclusions in the paper are: (1) the endogenous assumption of ownership structure is proved. It's necessary to pay attention to the endogeneity problem when doing research on ownership structure. (2) The effect on firm performance made by the equity ratio of the largest shareholders and other blockholders are both reflected as an inverted "U" curve. (3) The equity ratio of the largest shareholders negatively affects the D/E ratio, and positively affects the growth rate of fixed assets as well as the cash dividend payout ratio. (4) Other blockholders restrict the largest shareholders to some extend on the aspect of corporate financial decisions.