Ultimate Control, Encroach On Corporate Performance And Interests

Based on the theory of ultimate control right put forward by La Porta et al.(1999), through the aspect of interests expropriation cost constraints of the ultimate owner(UO) and related party transactions, and combined with the actual ultimate controller change case of Henan Shuanghui Investment&Development Co.,Ltd, this paper studies how the ultimate owner occupies outsiders’interest through separating the control right and cash flow right. According to the theory of ultimate control right, this paper analyzes the complex courses of Shuanghui’s management constructing the ultimate control of the listed company, including complex pyramidal ownership structure, special corporate governance structure and the hidden offshore trust account, and we found that the common motivation behind the management and PE fund is getting more control right by less cash flow investment, and providing convenience for tunneling through related party transactions and equity transfers et al.Besides, this paper put forward theory hypothesis through expanding the LLSV(2002) ultimate owner expropriation cost function, then uses the data of2010to test the theoretical indications, and we found out there is significant positive relationship between cash flow right and firm value, the separation of control right and cash flow right has a significant negative impact on firm value. Further more, higher cash flow right as expropriation cost constraint, weakens the negative impact of separation, while higher related party transactions as convenience condition for expropriation, strengthen the negative impact of separation on firm value, and when the type of ultimate owner is private, the interest expropriation from outside shareholders is more serious. Besides, the outside environment such as institutional investors’stake restrains the expropriation inclination.The empirical evidence verifies the theoretical indications, and this paper provide case analysis and empirical evidences for expropriation of controlling shareholder through control right.