The Impect Of Ultimate Ownership On Institutional Ownership

The concept "ultimate controller" La Porta et al.(1999) brought out created a new research field of corporate governance. They thought the ownership right should be represented by the cash flow right and the control right should be represented by the vote right. The deviation between the ownership right and the control right in the corporation took place because of the ultimate controller’s controlling the corporation by dual-class equity, cross-shareholdings or pyramids-shareholdings. The deviation urged the ultimate controller to expropriate the benefits of minority shareholders and creditors by illegal means like related transaction and occupation of funds. China was an emerging market country and there was also the deviation and ultimate controller in Chinese public corporate. In1998institutional shareholders began to appear in china and developed very quickly but the overall number of them was not much. Under the influence of the background that the first major shareholders always had a large stake in Chinese public corporate, institutional shareholders preferred to take part in corporate governance to prevent ultimate controller from expropriating the benefits of minority shareholders and creditors, or join the expropriation from ultimate controller to get more benefits? This was the main question the paper tried to solve.The paper used the sample of the906public companies from Shenzhen and Shanghai Stock Exchange in2009and applied OLS to empirically investigate the influence of ultimate ownership structure on institutional ownership. The result I found was as follows.(1) When the percent of institutional ownership was low, institutional shareholders preferred to the companies that had big deviation between the ownership right and the control right.(2) When the percent of institutional ownership was high, institutional shareholders preferred to the companies that had small deviation, but because their major ownership made them able to positively take part in corporate governance to prevent the expropriation from the ultimate controller, the preference was weaken.(3) When the percent of institutional ownership was low, institutional shareholders preferred to the public companies in poor legal protection region.(4) When the percent of institutional ownership was high, institutional shareholders preferred to the public companies in good legal protection region.(5) Pyramid complexity was not relative to institutional ownership.(6) When the percent of institutional ownership was low, institutional shareholders preferred to the public companies that had good balance of stock ownership.(7) When the percent of institutional ownership was high, institutional shareholders ownership preference was not relative to balance of stock ownership.