The Nature Of The Ultimate Controller, Pyramidal Control And Tunneling

With the completion of the share-reform, the controlling shareholders'legal person shares are gradually lifted a ban and circulating. Its benefit is linked more closely with the listed company's share price. The union convergence of interest effect between ultimate controller and small shareholders will be further enhanced. But, under concentrated-ownership corporate governance modes that widespread in the Chinese listed companies, ultimate controller gains more control rights with less cash through constructing a pyramidal control structure. So the control rights and cash flow ownership of ultimate controller have been separated, deviating from the principle of one share one vote. In this case, ultimate controller's interest is reflected by its cash flow ownership rather than the directly proportion of the largest shareholder. Therefore, it's better to grasp the nature of the problem by researching the ultimate controller of listed companies. The most important and most common way to control listed companies by ultimate controller is pyramidal control structure. With less cash flow ownership to control listed companies, it has enough motivation and ability to seek private benefits of control. As a result, the core problem of corporate governance in Chinese listed companies has been changed to conflicts of interest between ultimate controller and other small investors. Only when investors clearly understand the major controlling shareholders of listed companies and their controlling relationship, and trace to the ultimate controller, investors can better analyze the finance behavior of listed companies and their interest can be protected better.The essay firstly reviews the research achievements on the ultimate controller, pyramidal control structure and tunneling at home and abroad. Under the guidance of the agency theory, the essay constructs an analytical framework of ultimate controller's tunneling under pyramidal control structure. Then, the essay adopts empirical approach based on the data about the Chinese listed companies over period 2006-2008. Mainly analyze the relationship between three factors and ultimate controller's tunneling. The three factors are the type of ultimate controller, pyramidal control structure and the separation between controlling shareholders'control rights and cash flow ownershipThe empirical results show that: the degree of controlling shareholders'tunneling in the central government ultimately controlled companies is the least; controlling shareholders in government ultimately controlled companies tunnel through productive operation while controlling shareholders in natural person ultimately controlled companies tunnel through non-productive method; the more the pyramidal structure layers in nature person controlled companies and the bigger the degree of the separation between the ultimate controller's control rights and cash flow ownership, the more severe the tunneling of controlling shareholders; in central government controlled companies, the less the pyramidal structure layers and the more severe the tunneling of controlling shareholders; the separation of control rights and cash flow ownership strengthens the tunneling of controlling shareholders.Finally, based on the conclusion of the empirical analysis, we give some suggestions. They contribute to the improvement of state-owned assets management system, help to the management of capital markets and listed companies, help to urge the listed companies build more reasonable corporate governance mechanism, and also contribute to the construction of small investors protection mechanism, and to promote the healthy development of China's capital market.