Control Over The Companies Listed On The Hidden Interests - To The A Shares Of The Empirical Research

The idea of private benefits of control over corporate resources has become a centerpiece of the recent literature in corporate finance and corporate governance, both theoretical and empirical. Current research on corporate governance shows that, controlling shareholders have great incentives to exploit their control over corporate resources for the benefits of their own. Though these benefits come in a variety of forms, they share one common feature, i.e., some value, whatever the source, is not shared among all the shareholders in proportion of the shares owned, but it is enjoyed exclusively by the party in control. Hence, the name private benefits of control.Despite the importance of an quantified study on the average private benefits of control prevailing in China's equity market, which would greatly enhance our understanding of the corporate governance environment of China and hopefully direct to its improvement, the separate ownership and indifferent voting rights features of Chinese A shares market have largely complicated the situation. In this paper, I modified Barclay and Holderness (1989) method to infer the value of private benefits of control in China's A shares market. Given the carefully picked data set and the facts that this modification is tailored to Chinese market, this paper is able to provide a direct test of the existence and magnitude of the private benefits of control in Corporate China, as well as several theoretical propositions on its influence factors.The empirical results of this paper show that, on average, the value of control among Chinese listed companies is 7.2% as of owner's equity. I also find that the difference in bargaining power between controlling block's seller and buyer largely determined the relative magnitude of the private benefits each party can get. Among the most evident factors that determined each party's bargaining power, there are change in security value, seller's financial distress, corporate distress, auction as the deal's transaction form and buyer as a foreign investor. In addition, per share premium of a controlling block transfer has declined since year 2002 to 34.5%. Neither assets quality characteristics nor corporate governance characteristics seem to influence the block premium as they should have. Neither do industry characteristics. They may reveal the fact that the pricing mechanism of control transfer among Chinese listed companies has been a very rough and loose process.