The Puzzle Of Private Benefits Of Control

In recent years, in the field of corporate finance, the issue of private benefits of control of listed companies has become very hot. However, due to the inherent difficulty of measuring, as well as the diversity of its sources, both domestic and foreign scholars have put many efforts on the study of private benefits of control, from the measuring to the extent. And many studies have drawn a number of different conclusions.Because of the specific characteristic of China’s securities market, the long-term split share structure has made the study of private benefits of control a big difficulty in China. As a system that has historical legacy defects, split share structure restricted the well development of the capital markets. The split share structure reform in China has implemented since2005, which made the non-tradable shares of listed companies gradually lift towards circulation. This policy is bound to impact on the governance structure of listed companies, as well as the acquirement of private gains for the controlling shareholders. Since the present study of private control mainly focused on the time before the reform of share split, we thought it was meaningful to research the comparison on the changes before the split share structure reform and afterwards.Split share structure reform will influence the private benefits of control through corporate governance. Prior to the split share structure reform, China’s securities market constituted mainly of non-tradable shares, which resulted in the base of interests for controlling shareholder and non-controlling shareholder variant vastly. Therefore, the controlling shareholder of listed companies may tend to use their rights in hand to benefit themselves only. The split share structure reform has three advantages:firstly, non-tradable shares gradually filed into circulation, so the increase of the proportion of fluid shares made the controlling and non-controlling shareholders’interests consistent. In such circumstances, the controlling shareholder may reduce the private benefits of control at the expense of the interests of small shareholders. Secondly, as the concentrati-on of sharehold companies decreased, minority shareholders were capable of strengthening the supervisory of the controlling shareholder. Thirdly, wit-h the split share structure reform, supervision from all aspects would be reinforced. The above factors all led to a conclusion that the controlling shareholder would pay a greater cost if they intended to get private gains as before.In this paper, we collected samples before the reform and afterwards and contrasted the size of the private benefits of control as well as the factors influencing through multiple linear regression analysis. There are five conclusions as following:First, before the split share structure reform, China’s listed companies’private benefits of control is20.3%, comparing to19.4%afterwards.It showed that the split-share reform can exactly consummate corporate government mechanism and thus play a positive role in the curb of the invisible benefits.Second, the split share structure reform increased the proportion of shares in circulation, the fundamental problem of inconsistency by the controlling and non-controlling shareholder’interests was solved. As a result, not only the right of the non-controlling shareholder was enhanced, but also the circulation made it a greater obstacle for the large shareholders to swallow the private gains.Third, the split share structure reform made the sharehold of listed companies decentralized. After the share reform, the ratio of sharehold of the largest shareholder to the remaining nine was less than before the share reform, which indicated that the dispersing of sharehold hindered the private benefits gaining for the controlling shareholder.Fourth, the split share structure reform had not made creditors to play a meaningful part in corporate governance to promote supervisory role. However, after the split share structure reform, the debt did become an obstacle to private benefits of control.Fifth, when considering company acquisition, the controlling shareholder would take the relationship between its own company and the target into account. If the two companies were in one industry, this might signify that the buyers would intend to expand the scale of its company, which also demonstrated that they had greater opportunity to occupy private benefits. It turned out that the industry relationship was positive with the private benefits of control.