Research On The Relation Among Ultimate Controlling Shareholders, Fund Embezzlement And Under-investment In Listed Company

The share structure of Chinese listed companies is very centralized. It isestimated that about90%of Chinese listed companies are controlled by ultimatecontrolling shareholders. Through the pyramid structure, most of them achieve theseparation of cash flow rights and control rights, and possess excess control rightover stockholders’ meeting. With the separation of above two rights, controllingshareholders obtain numerous private benefits from minority shareholders and thecompany. Events like this happen frequently: ultimate controlling shareholders abusethe excess control right, infringe the interest of the company and minorityshareholders through channels like fund embezzlement, insider trading, etc.Companies are adversely affected, especially on making investment decisions. Thispaper traces the ultimate control of listed companies, studies the performance ofinvestment efficiency, more completely, comprehensively and truly reflects thenature relationship between them.There are numerous channels for ultimate controlling shareholders to obtainprivate benefits. Different ways lead to different effects, such as over-investment andunder-investment. This paper studies the relationship between ultimate controllingshareholders and investment efficiency from the view of fund embezzlement, whichprovides a new perspective for future research.This paper first reviews related research, defines the core concept, then usesinformation asymmetry theory, agency theory, private benefits of control theory as aguide to analysis the relationship among ultimate controlling shareholders, fundembezzlement and investment efficiency. This part makes the foundation forhypothesis and empirical research. In the section of empirical research, this paperselects242under-investment companies from681samples of Shanghai andShenzhen A-share listed companies during2009-2011, then analyses the relationshipamong ultimate controlling shareholders, fund embezzlement and investmentefficiency based on these samples. As a bright spot, this paper considers tunnelingeffect and propping effect synthetically in its theoretical analysis and variablesselection.This paper finds that fund embezzlement will lead to under-investment in listed companies. Controlling shareholders’ cash flow rights can effectively control thephenomenon of fund embezzlement, reduce under-investment and avoid ineffectiveinvestment, which shows a strong “incentive effect”. Although controllingshareholders’ excess controls right has positive effect on fund embezzlement, but it’snot statistically significant. We find that excess controls right have an invertedU-shaped impact on fund embezzlement. When excess controls right is within acertain range, ultimate controlling shareholders’ impact leads to fund embezzlementand under-investment. But if it exceeds that certain range, fund embezzlementdecreases. To explain, we think the reason is that, with large excess controls right,ultimate controlling shareholders prefer indirect asset encroachment to fundembezzlement, such as insider trading and tender guarantee, and this leads toover-investment in listed companies instead of under-investment.