Research On The Relationship Between Ultimate Shareholders Control And Capital Structure

In the recent years, more and more scholars study the corporate governance problem from the perspective of the agency problem of Ultimate Controlling Shareholders. Since the reform and opening up,the private economy develop rapidly in China, existing studies have shown that ownership concentration phenomenon is very serious in China’private enterprises, which is controlled by Ultimate Controlling Shareholders.Through the ownership structure which has a separation of control right and cash flow right,the control right (voting right) actually grasped by Ultimate Controlling Shareholders exceeds the cash flow right (residual claim right) greatly,and can influence corporate governance significantly.Generally speaking,previous scholars study the corporate governance’s influence on capital structure from the perspective of the agency problem between shareholders and managers,however,China’s private companies enter the securities market to get the capital support,and there is a serious phenomenon of "dominant stock " from the Ultimate Controlling Shareholders, there is an urgent need to study the corporate governance’influence on capital structure from the perspective of the agency problem between Ultimate Controlling Shareholders and minority Shareholders.First of all, this paper reviews relevant literature about ownership concentration,capital structure and corporate governance,based on the analysis about the control theory,agency theory and the mechanism of Ultimate Controlling Shareholders’agency problem,this study propose the hypothesis,establishes the empirical model.Finally, using the sample of private companies which have Ultimate Controlling Shareholders we make an empirical analysis, the sample covers an period of2007-201l,and contains1370private listed enterprises.Results of this study show that:the managerial ownership is significant negatively related to the debt ratio;with the ownership concentration grows,the debt ratio declines,which shows that there is a serious phenomenon of "internal control " by the Ultimate Controlling Shareholders;the ownership counterbalance index is negatively and significantly related to capital structure, which shows the "dominant stock " from the Ultimate Controlling Shareholders, outside shareholders are hard to check and balance them;the size of Board of Directors and the frequency of meetings of the Board of Directors are all significantly and positively related to capital structure,these two corporate governance mechanism can play a supervisory effect; the more control right grasped by Ultimate Controlling Shareholders,the more directors dispatched by them,and this ratio is negatively related to capital structure; the enterprises whose CEO and Chairman of the board belongs to the same person have a Lower levels of debt. The conclusions of this paper proposes Empirical evidence for the Ultimate Controlling Shareholders’preferences of debt financing, exert significant influence on the Board and encroach the interests of minority shareholders.