Research On The Relationship Between Related Party Transactions And Corporate Performance From The Perspective Of The Ultimate Controller

The private economy in China is experiencing tremendous development in recent YEAR.Although having achieved outstanding results,there are still many practical problems to be solved. The ultimate controllers make full use of their control rights over the listed companies to seek their own interests through related party transactions. The ultimate controllers transfer resources from the listed companies and grab the private benefits from the process. Related party transactions occur frequently not only damaging the interests of minority shareholders, but also reducing the integrity and profitability of the enterprises in the capital markets. Although regulatory departments supervise the related party transactions and increase the punishment, there are still more corporate governance issues which are difficult to solve fundamentally because of the hidden nature of the ultimate controlling.With selecting the data of the private listed companies from2007to2011,the research finished empirical tests to examine the relationship between the control rights and cash flow rights with related party transactions, and also the relationship between the related party transactions and the corporate performance. Finally the essay gave some corresponding recommendations on how to reduce the related party transactions of the ultimate controllers.The study combined the theoretical analysis and empirical tests. Theoretical research focused on the ultimate controller of the private listed companies,related party transactions and corporate performance.Then the research built the regression models to do the empirical testings.The conclusions are as follows:(1) The ultimate controllers of the private listed companies usually build the separated structure of cash flow right and control right.The sample of the separated companies accounted for64.99%, and related party transactions of the separated sample was significantly higher than the non-separated sample.The corporate performance(earnings per share) of the separated samples is less than that of the non-separated sample.(2) The control right of the ultimate controller and the related party transactions showed a significant positive correlation.The cash flow right and the related party transaction showed a significant negative correlation. And with increasing separation degree of the two rights,the related party transactions gradually increased.When the separation of the two right was large,the negative correlation between the size of the related party transaction and the company performance was strengthened.(3) With the increase in the level of related party transactions,the EPS of the companies decreased.And in the case of higher cash flow of the ultimate controller,the positive correlation of the level of related party transactions and the separation of the two right was weakened.(4)The study also found that the equity restriction of the shareholders constrained the related party transactions and thereby reduced the encroachment of the ultimate controller. The listed companies should introduce more institutional investors or major shareholders to restrict the ultimate controller’s action,which will ultimately improve corporate performance.