Research On The Impact Of Cross-shareholdings On Business Performance Of China’s Listed Companies

Since the establishment of joint stock companies, the fight for control power has never stopped. In order to reach a certain economic purposes, two or more companies implement mutual investment, and hold each other’s shares, to form a company alliance with mutual support and mutual inhibition, that kind of company alliance is cross-shareholding. With the continuous deepening of China’s market economy, the cross-holdings has shown a strong power on expanding the business scale, reducing business risk, and facilitating the scheduling of the funds, however, at the same time, inflated capital, monopolies, inside trading and other disadvantages have stood out, which has seriously interfered with the healthy development of China’s capital market, and has aroused widespread concern.This paper has reviewed some research literature on corporate cross-shareholdings, and tries to clarify the concept, types. Based on the summary of previous research fruits, it reveals the development status of China’s cross-shareholdings phenomenon and analyzes the motivation as well as the pros and cons of cross-shareholdings. Furthermore, it makes a deep analysis in cross-shareholdings from the theoretical aspect, in order to find out how to enhance strength and avoid the weakness, at the same time, making some empirical research on the impact of the cross-holdings on the business performance. The samples are selected from all the A-share companies listed in Shanghai stock market before December31,2010. And the data of top ten shareholders of those listed companies has been collected and analyzed. In addition,33eligible cross-shareholding company and listed cross-shareholding companies in the same industry are selected to do paired test through utilizing the annual report (from2008to2010), in which the asset size difference among those selected companies are minimum.Through the case study, we find that there is a significant difference in the business performance between listed companies with cross-shareholdings and listed companies without cross-shareholdings. To a certain degree, the listed companies with cross-shareholdings have better performance on profitability and operational capacity than the listed companies without cross-shareholdings. So it has proven that cross-shareholding can play an active role on operating performance of listed companies, and it is suggested to improve anti-monopoly laws and information disclosure, and establish operator’s checks and balances mechanism, in order to achieve a healthy and stable development of China’s capital market.This paper has made some innovation on the research methods and research content. It introduces the Du Pont financial analysis system to make comprehensive evaluations for the business performance of listed companies. Moreover, it conducts a detailed analysis of the impact of cross-shareholdings on listed companies’business performance. Since the practical research objectives of this paper are only limited to the direct cross-shareholdings among the top ten shareholders from the listed companies, so it may affect the empirical results.