Pyramid Ownership Structure Of The Internal Capital Market Behavior And Its Governance Issues

The biggest problem of the capital structure is inconsistent with control power and residual claim. The internal capital market of enterprise further increases the separation of control and ownership. Shao, jun (2007) found that the shareholders used the internal capital market as a delivery channel for them to transfer company's benefits, which further exacerbated the separation of control and ownership, and further complexed the corporate of governance issues.In the modern corporate governance theory, many researches have been focused on the distribution of benefits for the company. It is found that the conflict of company stakeholders in interest would increase the cost of corporate governance as long as company's conflict of interest expands and accumulates to a certain amount, which will complex governance issues, reduce the value of the company, or even lead to failure of the company's decision making. When the failure of a company expands for all the companies in market, it will lead to the failure of capital market, and even the emergence of financial crisis. In the company's history, there have been a lot of equity forms. Pyramid ownership structure, as one of equity forms, is accompanied by diversification of enterprises'appearance, which has a significant impact on the company's organizational changes and capital markets. On the one hand, in practice, the ultimate controlling shareholders of the pyramid ownership structure achieve the ultimate control of the ownership through chain, which enable them to use small capital to control a large number of assets. Although the controlling shareholders of the company only hold a small cash flow right of underlying company, they still control the business. This will not only help enterprises to expand their diversified business, but also promote the company's integrated development. On the other hand, pyramid ownership structure brings about extension of principal-agent, the "capital of purification" and other issues, which leads to the complication of economic issues: First, internal capital market becomes a tool for looting the company; Second, internal capital market leads to a number of agency problems, which makes the traditional corporate governance more complex; Last, this not only harms the interests of small shareholders, but also seriously affects the business development and reduce the enterprise value, which ultimately affects the health of the capital market operation. This point can be seen in previous economic crisis.Based on this background and in accordance with "observe the problem-found the problem-analysis of the problem-solve the problem", this paper analyzes the problem of the pyramid ownership structure under the internal capital market's financing behavior employing the relevant basic theory as a starting point. First, this article defines pyramid ownership structure and internal capital markets, which introduces the pyramid ownership structure of the internal capital market financing behavior. By introducing the typical case, this paper further finds that many financial behaviors in the pyramid ownership structure of the internal capital market. Second, bases on the theory of corporate governance, this paper analysis the causes of the production of such improper conduct financial, and which draws the conclusion is the separation of control and ownership. Last, the paper points out governance measures which improves the pyramid ownership structure of the internal capital market financing.