Discussion About Interest Invading Of Private Listed Companies In China Under Pyramidal Ownership Structure And The Corresponding Countermeasures

In traditional academic literature on corporate governance,one of the problems mainly focused on is the agency conflicts between the inside managers and shareholders in the dispersed ownership structure (Agency Problem I). In recent years, the academic research results show that the shareholding structure is not dispersed as expected, but more concentrated.A more recent line of research confirms however, that most of the firms around the word, especially in developing countries have a controlling shareholders,usually a family or the State.The prevalence of controlling shareholder can align manager’s interests with those of shareholders and alleviate the conflicts of interests between owners and managers. However, it lead to a conflict of interest between the controlling shareholder and minority shareholders. Because once the controlling shareholder control of the company, they may use company resources for private beneftis,that is, to get private benefits of control at the expense of minority shareholders. Led to the agency problem between controlling shareholders and minority shareholders (Agency Problem II).Several recent studies show that there ate ultimate controllers in most companies around the world. The existence of ultimate controller, not only determine the distribution pattern of the company’s residual claim and residual control rights, but also exert significant impact on the company’s financial decision-making behavior. Pyramid shareholding structure is the most commonly used mechanism to enhance control by ultimate controller. The separation of cash flow right and control right in pyramid shareholding structures makes the ultimate controller expropriate the corporate resource at the expenses of minority shareholders and listed companies for their private benefits of control. Thus it can create substantial conflicts between ultimate controller and minority shareholders, as ultimate controller can appropriate private benefits of control without incurring their fair share of the cost.With the advancement of China’s privatization reform, private economy has grown and private listed companies in China’s capital market is becoming more and more important. At present, ultimate controller of private listed companies in china widely used pyramid shareholding structure to separate control and cash flow right, agency problems caused due to conflicts of interest between the ultimate controller with external minority shareholders are gradually revealed. In2004, according to the requirements of the China securities regulatory commission, listed companies in China must publish the ultimate controller and its ownership in the annual report, and disclose the control chain of listed companies. Partly to constraint the moral hazard behavior of the ultimate controller and strengthened the information transparency of listed companies. But in recent years, the phenomenon of the ultimate controller occupy listed company and external small shareholders interests is still emerging.The paper discuss this issue by three aspects. Why the vast majority of private listed companies in China choose pyramid shareholding structure rather than choose level holding structure to build enterprise group? How does The agency problem between ultimate controller and minority shareholders show? The reasons why ultimate controller can encroach on minority shareholders and how to prevent the ultimate controller encroach on interests by the problem?According to the above problem, based on the basic theory of pyramid equity structure, the paper make a theoretical discussion about the reasons and motives of the occupation of the interests by ultimate controller.The paper first reviewed the research results about the pyramid shareholding structure by the domestic and foreign scholars. Based on this, put forward the connotation and characteristics of the pyramid shareholding structure, make a theoretically analyse about the ultimate controller choose pyramid shareholding structure rather than choose level holding structure to build enterprise group. Make the interests of the status quo of the minority shareholders as the research basis points, then make analysis of the reasons why ultimate controller can encroach on minority shareholders. Take Zhejiang Haina Science and Technology Co.,Ltd. as an example, Deeply analyzed how do ultimate controller of Zhejiang Haina occupy listed company resources and the minority shareholders’ interests, and make an evaluation of the case. On this basis, puts forward some Corresponding Countermeasures for benefits in the prevention of occupation under pyramid shareholding structure, improve the mechanisms of governance of listed companies and protect the interests of external shareholders.The paper is made of six chapters, the main content of each chapter is as follows:The first chapter is introduction. Mainly introduces the background of common private listed companies in China the pyramid ownership structure is adopted to control the company, Illustrate research question and research significance,at the same time, also introduces research idea,content framework and research methods.The second chapter is about domestic and foreign research review. This chapter in accordance with certain logical system to collate and summarize related research. First introduced the domestic and overseas scholars research results, the causes of the pyramid shareholding structure from four aspects to summarize research results of scholars both at home and abroad, and make a briefly comments, and then introduces the research on interest invading of private listed oompanies in China under pyramidal ownership structure by the domestic and foreign scholars, make a good groundwork for the research of below.The third chapter is about basic theory. First of all, make a resolution of the important concept involved, reviews the theoretical basis associated with this study, based on this, points out the main features of the pyramid control structure,and combined with the actual situation in our country, make a theoretically analise about the reason of private listed companies in China choose pyramid control structure.The fourth chapter is the status quo and reasons of interest invading of private listed companies in China under pyramidal ownership structure.First theoretically illustrates the way of interest invading. And then combined with the interests of small shareholders under the pyramid shareholding structure in China. illustrates causes of the ultimate controller can infringe on the interests of minority shareholders.The fifth chapter is case analysis. First, make a brief introduction about Zhejiang Haina, Then explain the basic circumstances of the case-the way of the ultimate controller against the interests of the minority shareholders. what are the interests of the occupation of the consequences to listed companies, the last to summarize case evaluation.The sixth chapter is about the corresponding countermeasures of interest invading of private listed companies in China under pyramidal ownership structure. On the basis of above analysis, put forward some policy Suggestions, analyses the prevention countermeasures of benefit expropriation,from three aspects:minority shareholders of self protection; by regulators to protect against it; by laws and regulations to protect against it.The sixth chapter is about the corresponding countermeasures of interest invading of private listed companies in China under pyramidal ownership structure. On the basis of above analysis, put forward some policy suggestions analyse the prevention countermeasures of benefit expropriation,from three aspects:minority shareholders of self protection; by regulators to protect against it; by laws and regulations to protect against it.The main contribution of this paper is:(1) Through theoretical studies of the pyramid ownership structure characteristics, deeply analyzes the cause of private listed companies choose pyramid ownership structure to build enterprise, and under the protection of the legal system of our country, the ultimate controller can infringe on the interests of minority shareholders. Draw some views for the improvement of listing corporate governance mechanism.(2) According to the benefit expropriation agency problems under private pyramid ownership structure of listed companies in China, put forward some policy suggestions analyse the prevention countermeasures of benefit expropriation,from three aspects:minority shareholders of self protection; by regulators to protect against it; by laws and regulations to protect against it. A guiding role for the mitigation of the interests of the occupation of the behavior of the controlling shareholder, to protect the interests of minority shareholders.(3) The paper take the private listed companies in China under pyramidal uwnership structure as research objects, Through tracing control chain and search for the ultimate controller of listed companies. Breakthrough the limitation of the surface layer of listed company equity, deeply discusses the benefit expropriation problem of ultimate controller under pyramid shareholding structure, And put forward powerful creative countermeasures, have certain innovation.