The Effect Of Family Firm's Control Right, Cash-Flow Right, Their Deviation On Firm Performance

The prevalence of ultimate controlling shareholders in worldwide listed companies is found in a large number of studies at home and abroad, particularly in the family firms. Fairly typical feature of family ultimate controlling shareholders in China is widely using pyramid structures to maintain the control right of listed companies. The typeⅡagency problems which are caused by the deviation of ultimate control right and cash flow right become the research hotspot.This article is based on the China's non-tradable share reform which started in 2005 and is a very important institutional change event. We take 247 private companies which list in Shanghai and Shenzhen stock exchange before December 31,2005 as samples. We mainly do the study from three aspects as follows: (1) Firstly, we do the descriptive statistical analysis of the key variables such as family ultimate control right, cash flow rights, their deviation, firm performance and the proportion of the tradable shares from the perspective of time-series. Through the comparative analysis about the average value of each variable in the time-series data, we find that the proportion of family control right declined pre-and-post the reform, but remained stable after the reform; The degree of deviation was in a declining trend; With the completion of non-tradable share reform, the performance of family listed companies had some improvement. However, the performance of listed companies declined sharply in 2008, which was the lowest of the five years. It may be directly related to the global economic crisis which broke out in 2008.(2) We select the proportion of the tradable shares as the alternative variables for the effect of reform and assume that there is a cubic equation between family ultimate control right and the firm performance. Samples are divided into two panels, one is 2004-2005 (on behalf of the state before the non-tradable share reform), and the other is 2006-2007 (on behalf of the state after the non-tradable share reform). Equations are established to regress and compare the two panels respectively. Whether it is before or after the non-tradable share reform, the regression results of the two panels show that the cubic relations between Chinese family ultimate control right and the firm performance is true, and it appears "expropriation-alignment-entrenchment". But the synergy range is different. It noticeably increases after the non-tradable share reform. The number of private listed companies which enter into the synergy range has increased by nearly 35%.We also find the significant negative association between the proportion of the tradable shares and firm performance, while the degree of the deviation is significantly positively correlated with firm performance after the non-tradable share reform. These findings are different from a number of scholars'relevant research.(3)This paper also choose 64 samples of the whole whose proportion of tradable shares are over 70% to do further stable test.It shows that the basic conclusion of the large sample data is stable. R square for the cubic relationship between control right and firm performance is more perfect. The regression results illustrate that the synergy range is 17.26%-63.63% after the non-tradable share reform which is near-unanimous with Hong Kong's synergy range (16.86%-63.17%).The proportion of tradable shares is significantly positively with firm performance after the share reform.It may be the characteristic of all tradable environment.The results show that there is preliminary association between the family controlling shareholders, listed companies and the minorities on interests. With the all tradable times coming, the non-tradable share reform will play more significant role to enhance the firm performance; The deviation is a "double-edged sword".Its positive effect on the firm performance after the non-tradable share reform shows that the main root of typeⅡagency problems of Chinese family listed firms has been changed. It needs further study.