The Empirical Research Of Control Of Major Shareholders, Related Party Transactions And Operating Results Of Listed Companies

Related party transaction is a behavior that refers to the transfer of resources betweenrelated parties, obligations or labors, regardless of the charged price. Related partytransactions have different effects based on different theories. Transaction cost theoryholds that related party transactions make the market transactions of the enterpriseinternalization, thus contributing to reduce the transaction cost, trading risks anduncertainties in the transactions, enhance the efficiency of business operations and theoverall competitiveness of the enterprise group; Agency theory consider that controland ownership is a high degree of separation in most companies, the controllingshareholder has a strong incentive for private gain, relate party transactions which hashidden characteristics has become a commonly used means of controlling shareholder,they transfer company’s resources through related party transactions and harmcorporate value.Most of the listed companies in capital countries come from the development ofclassical enterprise system, but China’s listed companies is the product of thestate-owned enterprise reform, they are separated from the parent company, thus theyare linked to their parent companies and the non-listed companies that their parentcompanies control, the phenomenon of listed companies’ imbalance of shareholdingstructure and high concentration of shareholding are common in listed companies,these provide fertile soil for related party transaction. The controlling shareholder ofthe company expenses small shareholder’s interests for its own sake, they use relatedparty transaction to empty listed companies, such behavior is more rampant in Chinawhich has imperfect investor protection system and imperfect corporate governancemechanisms. It not only reduces the investor’s awareness of investment, but also leadto huge losses and even delisting of many listed companies. This article will takeadvantage of the experience date of China’s capital market to explore the impact ofmajor shareholder to related party transaction.This paper collects controlling shareholder stake, amount of related party transactions,total assets, ROE, Tobin s Q value and other related data of Shanghai and ShenzhenA-share listed companies between2008and2011, and then uses the empiricalanalysis method to research the relationship between control of major shareholders,related party transactions and operating results of listed companies. Firstly, the papermakes a descriptive statistical analysis of relevant data, and then the paper makes univariate analysis between controlling shareholder stake, related party transactionsand operating results of listed companies. After that, we build three models to furthervalidate the relationship between controlling shareholder stake, related partytransactions and operating results of listed companies by linear regression. The resultshows that the relationship between controlling shareholder stake and the frequencyof occurrence, amount and size of related party transaction has a positive correlation,regardless of the stage of stake of controlling shareholder. When the controllingshareholder stake is low, the relationship between operating results of listedcompanies and controlling shareholder stake is negative, when the controllingshareholder stake is high, he relationship between operating results of listedcompanies and controlling shareholder stake is positive. Related party transactions isa transmission mechanism between controlling shareholder stake and operating resultsof listed companies. At last, this paper examines which types of related partytransactions play a decisive role in the transmission mechanism. This paper usesFreedman s and Schatzkin s model to test the transmission mechanism of relatedparty transactions.The results of this study show that the large numbers of related party transactions inChina’s listed companies do have two sides feature, not all related party transactionsare unfair and are harmful to the company, there are inter transactions that arecompliance with transactions costs perspective. In different stages of controllingshareholder stake, the effect of related party transactions on the operating results oflists companies is different and the role of different types of related party transactionsin the conduction mechanism is different. Thus, for related party transactions, we cannot blindly ban, we should combine with actual situation of listed companies to makea choice.