Computing And Analyzing Control Power For Listed Companies In China

This paper computed two types of control power for first majority stockholder, which are under the ordinary resolution and special resolution mechanisms respectively, and effective control portion for Chinese listed companies based on the revised model which was raised by Zhang and Wang (2008). And then we made a further study in the background of the Split Share Reform (SSR). The SSR is target to improve Chinese capital market and protect the best interest of small shareholders, so using the control power we computed, we analyze the SSR’s performance from the perspective of change of control power and the splitting of control power and cash flow.In our analysis, we firstly computed the control power using Probabilistic voting model from Zhang and Wang (2008) and then make a statistical analysis. We find that the control power computed is stable in sample period, and further, the switch of first shareholder is negatively related to the control power:first shareholder with small control power can be switched easily. Besides, we find that the shareholding ratio of first shareholder is way high than the effective control portion we computed using the revised model, which shows that the highly centralized situation in China market. Then we take Shenzhen International Enterprise Co., Ltd as a case study to show the control power character of switching first-shareholder frequently.After that we analyze the control power change after SSR, and investigate the change in "Tunneling effect" after SSR. We find that after SSR even though the ratio of shareholding for first majority shareholder is decreasing, but the control power is keeping stable, which means the "Tunneling effect" is not change much.Capital market in China limits the business development in China, and protecting interest of shareholders, especially the medium and small investors, limits the improvement of capital market. Firm controlling power can benefit the stability of companies, but also is hurting the interest of medium and small shareholder. Our investigation can be basis of judging SSR and improving capital market, also can provide suggestions to related departments to make rules for managing the control power in listed companies. Besides, this paper can benefit the controlling shareholder to make a good control power plan, which will make their control position even firm.