Private Listed Companies Pyramid Shareholding Structure Study

As the private sector of China develops rapidly, more and more private enterprises successfully come into security market. After examining the ultimate ownership structure of Chinese private listed companies, the paper finds that the pyramidal shareholding structure is prevalent in Chinese security market. Some entrepreneurs control more than one listed company and forge them into several clusters in the market by pyramidal shareholding structure. Along with some scandals of private listed company clusters are reported recently, more and more scholars pay attention to the pyramidal shareholding structure and investigate it.In the first place, the paper systemically reviews the foreign and domestic researches on pyramidal shareholding structure. The paper introduces the research results on the concept and characteristics of the pyramidal shareholding structure, the empirical evidence of the pyramidal shareholding structure, the emerging condition of the pyramidal shareholding structure and the influence of the pyramidal shareholding. In the second place, the paper describes the present conditions and the distributing characteristics of the pyramidal shareholding structure in Chinese private listed companies. Basing on the description, the paper theoretically analyzes the impact of pyramidal shareholding structure on firm value, as well as the relationship between the ratio of cash-flow right over control right and the specific characteristics of the company. Based on the forgoing theoretical analysis, the research hypotheses are put forward. In the empirical section, the paper researches the impact of the cash-flow right of ultimate owner on firm value, the impact of separation between cash-flow right and control right on firm value, and the relationship between the ratio of cash-flow right over control right and the particular characteristics of the firm, using the empirical data of Chinese private listed companies in 2004.The results of the empirical analysis indicate that the pyramidal shareholding structure is very common in Chinese private listed companies. Compared with other type of listed companies, even with other listed companies around the world, the separation between cash-flow right and the control right is stronger in the private listed companies. Taking the pyramidal company into account, the paper finds that the firm value increases with the cash-flow right of the ultimate owner, consistent with a positive incentive effect. But the firm value falls when the degree of the separation between cash-flow right and control right increases, consistent with an entrenchment effect. The paper also finds the ratio of cash-flow right over control right is negativelyrelated to asset size, debt ratio and free cash flow. That is, the ultimate owner tends to locate the firms with more assets, more debt and more free cash flow in the lower layer of the pyramidal ownership chain, in order to maximize his sensitivity to positive shocks and minimize his sensitivity to negative shocks.At the end, suggestions on how to regulate the pyramidal private listed companies and protect the minority shareholders' rights are proposed, according to the empirical results. The paper also notes the shortage of the research and the research prospect of the future.