Empirical Research On Ultimate Control Right, Cash Flow Right And Company Performance

Many nonstandard behaviors of stock markets in our country result from ultimate control right. La Porta et al(1999) first proposed the concept of ultimate control, and also pointed out that when analyzing the issue of ownership structure, we should chase the ultimate controller of the company through the chain of ownership, rather than simply to regard the largest shareholder as the controlling one, due to the separation between cash flow and control rights. That the control rights of ultimate controller exceed their respective ownership may often leads to agency costs between ultimate control shareholders and small and medium-sized shareholders, and then affects company performance.The study also attempts to answer what relationship the ultimate controller of the ownership (cash flow rights) and corporate performance is, and how the separation of the ultimate control rights and cash flow rights affect business performance when ultimate controllers exist.The analysis in data section is based on newly assembled data for3808publicly traded corporations in China’s A-share stock markets from2009to2011. We use empirical methods as the principal way to analyze the study, supplemented by normative methods. The results suggest that, cash flow rights of the ultimate controller of publicly traded corporations and their company performance has a kind of significant positive correlation, that is, a corporation with higher cash flow rights will have a better company performance; The separation of ultimate control rights and cash flow rights shows a kind of significant negative correlation with their company performance, that is, a corporation with higher the degree of separation of rights has a worse performance. In the subsample study, we found that compared with the state-owned listed companies, the private-owned listed companies have a higher degree in separation of two kinds of rights.On the basis of empirical research, We make conclusions and propose corresponding policies and suggestions from aspect of supervision and protection. Meanwhile, we point out some contributions as well as shortcomings in our study. The paper consists of six parts:In first part, we introduce the background of the research, the framework and the methods of the study.In the second part, we review the relevant literature on ultimate control right and cash flow right as to get some enlightenment from the current research.In the third part, we give a clear definition of some core concepts in our study, and then elaborate our theoretical foundation on agency.In the following part, we describe our research design based on previous analysis. We define the variables and correspondingly build models.In this part, we carry out the empirical tests of the relationship between company performance and separation of ultimate ownership and control right.In the last part, we make some conclusions and suggestions, hoping to find way to make China’s stock markets healthier. Also, we point out some shortcoming of the study.