Relationship Between Ultimate Controlling Shareholder, The Separation Rate Of Two Rights And Corporate Value: An Empirical Study

In1990s,La Porta et al study the ultimate control right by tracing the chain of theownership for the first time,the research showed that corporate ownership around the world isconcentrated to some extent. In the later, many scholars such as Claessens (2000),Faccio(2002) also found corporate ownership in many countries are concentrated instead ofdispersed. The focus of corporate governance research shift from the agency problembetween the managers and shareholders to the agency problem between large shareholdersand minority shareholders.The Paper study the literature of home and abroad on the relationship between ultimateowner and the minority shareholders.The paper select samples from2007-2010ChineseA-share listed companies in Shanghai security exchange and Shenzhen securityexchange.From the point of view of ultimate owner,it researches the relationship between thefirm value and the cashflow right,control rights, control hierarchy,degree of deviation. At thesame time,according to the free cash flow assumptions, I research the relationship betweenthe degree of deviation and firm value.Finally,the paper come to the following conclusions:The control rights and the firm value present “U-shaped” relationship.When the controlright is not strong, thus ultimate shareholders have no "capacity" to damage the interest of theminority shareholder; When above a certain level ultimate owner gradually have the"capacity" to damage the interest of the minority shareholders and gain private interests,which will lead to the value of the firm to decline.The cash flow rights of the ultimate controlling shareholders has a positive relationshipwith the firm value. The more cash flow rights owned by the controlling shareholder, thelarger the firm value will be.The cash flow right represents the ownership of enterprises.whenthe ultimate controlling shareholder own more cash flow rights, the controlling shareholderhave more motivation to gather information, supervise management team,make scientificdecision and encroach on the interests of minority shareholders,which improve corporatevalue eventually.The separation of the two rights has a negative correlation with the firm value,and theresult has past the tests. The greater the degree of separation of control rights and cash flowrights,the more motives the ultimate controlling shareholder will have to obtain privateinterests,and ultimately reduce the value of the company.The native negative effects of thedegree of the separation of the two right to the firm value will be more obvious in the privatelisted companiesAs for the relation between the free cash flow and firm value,the native negative effectsof the degree of the separation of the two right to the firm value will be more obvious in thecompany with plenty of free cashflow. Plenty of free cashflow provide full opportunity for the ultimate controlling shareholder to damage the interests of minority shareholders,thus thefirm value decrease. while minor free cashflow can reduce the resources that are easilytransfer by controlling shareholder,which will elevate the value of the firm.The control hierarchy has a negative correlation with the firm performance.In theOwnership structure,the multi-level feature reduces the transparency of the company,themore number of the hierarchy,the smaller Restricting factors will be,which is convenient forthe controlling shareholders to seek private interests and lead to the decline of the firm value.