Study About Effect Of Deviation Of Control Right From Cash-flow Right On The Value Of Private Listed Enterprise

The relationship between deviation of control right from cash flow right and theenterprise value has always remained as a hot research topic for both domestic andforeign academicians as well as a practical problem confronted by the medium andsmall shareholders. Large quantity of studies has indicated that the ultimatecontrollers of listed companies generally make use of such complex chain controlways as pyramidal share structure and cross-shareholding to deviate the control rightfrom cash flow right, realize absolute control on the target companies, obtain personalgains from the control right and finally influence the enterprise value.With the continuous perfection of securities market in our country, the role ofprivate listed enterprises in domestic economic society is increasingly significant.However, the private listed companies display also the shortcomings of otherenterprise groups, sometimes even worse than other groups. Relevant studies haveshown that among the private listed companies, such phenomena as deviation ofcontrol right from cash flow right is not uncommon and the deviation degree isrelatively serious. Therefore, the research on the effect of deviation of control rightfrom cash flow right on the enterprise value in private listed companies caneffectively improve the ownership structure of private listed companies and promotetheir further development.This paper adopts the private companies listed in stock markets of Shanghai andShenzhen from2009to2011as the research objects and analyzes the effect ofdeviation of control right from cash flow right. The paper firstly makes a systematicanalysis of relevant references both at home and abroad, summarizes predecessors’studies about the relationship between separation of two rights and enterprise valueand focuses on the illustration of relevant ideas, implementing methods andcalculating ways. Then, it carries out theoretical analysis of the effect of separation oftwo rights on enterprise value and puts forward some hypotheses. In this part, thepaper not only analyzes the control right, cash flow right and effect of their deviationon enterprise value, but also observes the restrictive effect of cash flow right and freecash flow on the capture behavior of ultimate shareholders. Next, the paperdemonstrates the above-mentioned hypotheses with empirical data through casestudies and reaches following conclusions:(1) in a private listed company, the cashflow right have a significant positive effect on enterprise value, the control right, cashflow right and their deviation have a significant negative effect on enterprise value;(2) when the cash flow right in one private listed company is relatively large andentrenchment effect is relatively insignificant, the negative effect of deviation ofcontrol right from cash flow right will become small;(3) under the effect of free cashflow, the private listed company has enough “chances” to profit from control right soas to depreciate the enterprise value.In the light of above empirical results, this paper comes up with followingsuggestions for the perfection of governance structure in private listed companies:enhance the information disclosure system of listed companies, endow the mediumand small shareholders with right of action against independent director, guarantee theposition of board of directors as well as board of supervisors, free cash flow decrease,and reduce the separation of control right from cash flow right.