The Impact Of Ultimate Controlling Shareholders On The Business Diversification Of Listed Companies

La Porta(1999) found that ultimate controlling shareholders are ubiquitous in listed company and put forward the theory of ultimate ownership. Shareholders achieve the ultimate control of listed companies by ways of building pyramid shareholding structure, cross-shareholding or dual-share structure. They can gain more control rights with less cash input, which leads to the separation of control rights and cash flow rights of listed companies. In addition, they encroach on resources of listed companies to deprive the interests of small and medium shareholders. The special system background causes most of private listed companies controlled by ultimate shareholders through pyramid structure in China. Under the case of equity concentration with imperfect investor protection law and market regulation mechanism, the ultimate controlling shareholders behind private listed companies encroach on the interested of small and medium shareholders in different ways. In recent years, many researchers have found that diversification in private listed companies in our country exists obvious discount phenomenon. Some scholars think that controlling shareholders’ grabbing-interests behavior can effectively explain the generation of corporate diversification discount. Based upon the background, this essay uses private listed companies as data sample to study the influence of ultimate shareholders on diversification of listed companies.This paper arranges the overall research ideas and contents following order of raising question, theoretical analysis, status analysis and empirical study. Specific to empirical study, this essay first studies the influence of diversification of private listed companies on performance, and then tries to figure out whether diversification of listed companies is an approach of encroaching on the interests of small and medium shareholders. On this basis, this essay further studies how controlling rights and cash flow rights of ultimate controlling shareholders, degree of separation of two rights and control levels influence diversified management behavior of private listed companies.The research conclusions are:(1) under pyramid structure, diversified management of private listed companies may be a means of ultimate shareholders encroaching the interests of small and medium shareholders;(2) with the increase of ultimate controlling rights, the degree of diversification of private listed companies decreases under pyramid structure;(3)with the increase of ultimate cash flow rights, the degree of diversification of private listed companies decreases under pyramid structure;(4) with the increase of the separating extent, the degree of diversification of private listed companies increases under pyramid structure;(5) with the increase of control levels, the degree of diversification of private listed companies increases under pyramid structure.