Research On The Relation Among Ultimate Controlling Shareholders, Bidirectional Embezzlement Of Funds And The Capital Structure

China’s listed companies are primarily focused on equity, with a majority of thecompanies in the nation having the phenomenon of ultimate controlling shareholder.Ultimate controlling shareholder has invaded motivation and used the pyramid structure tocreate ultimate control rights and well as separation of cash flow rights, as well asavoidance for potential conflicts of interest between ultimate controlling shareholders andminority shareholders. Therefore the ultimate controlling shareholder will continue toimplement self-interest behavior, maintain control of private income, occupy the resourceof listed companies and occupy the interests of minority shareholders. However in recentyears, the excessive encroachment of ultimate shareholders has resulted in high debt forlisted companies, declines in value, as well as companies suffering heavy losses. Thus,economic consequences (investment, capital structure, etc.) caused by the ultimatecontrolling shareholder have attracted widespread attention. The capital structure has beena classic topic of corporate finance, with increasing numbers of people investigatingthrough the perspective of the ultimate controlling shareholder in order to explore itsimpact on the capital structure. Due to the problems arisen from the capital structure, thisarticle discusses the behaviors of the economic consequences caused by ultimatecontrolling shareholder. When people take different strategies to create ultimate control, itresults in different capital structure effects. This article investigates the effects of differentstrategies, and how the specific relationship between the two levels will be more conduciveto the understanding of the mechanism of action of the ultimate controlling shareholder tothe capital structure.Firstly, this article review the relevant literatures and identify gaps in the currentstudies, Then the basic concepts of this article will be defined and the theory of ultimatecontrolling shareholder and capital structure will be introduced based on the two aspects ofthis theory made in this paper. The empirical analysis section of this article is of3011samples selected from the2010-2012listed companies in Shanghai and Shenzhen. Sincethe purpose of this paper is to explore the relationship between the behaviors of ultimatecontrolling shareholder and the capital structure under two-way choice of embezzlement offunds. Thus, whether it is the assumption made or subsequent empirical analysis, they areboth correlated to the relationship between the ultimate controlling shareholder and theembezzlement of funds, researching funding and capital structure. By studying the impact of the ultimate controlling shareholder on embezzlement of funds, and the impactof embezzlement of funds on capital structure, we will be led to find the relationshipbetween the ultimate controlling shareholder and the capital structure.Through the research conducted, I found that embezzlement of funds do causechanges in the capital structure. Embezzlement of funds used on this path, the ultimateseparation of ownership and control of the ultimate controlling shareholder, because thestronger the motivation occupation, the greater the embezzlement of funds. The ultimatecontrolling shareholder will try to raise the gearing ratio to meet the needs of their ownoccupation, in turn causing a higher debt ratio for listed companies, valuing their ownself-interest over that of the mass. Cash flow rights of the ultimate controlling shareholderinhibit the embezzlement of funds,namely due to the fact that there is the negativecorrelation between the two, and the cash flow rights and capital structure also showed anegative correlation. The cash flow rights on behalf of the listed companies suffers losswhen people need to take control of the ultimate share, and therefore the greater the cashflow rights, the more people necessary to bear the loss of ultimate control. With theirinterests of minority shareholders and listed companies in line, in order to maintain thecompany’s survival and development, the ultimate controlling shareholder will needminimize their unnecessary liabilities. Furthermore, in regards to the embezzlement offunds, the ultimate controlling shareholders of the non-state-owned corporations have moremotivation to embezzle, therefore carry more debt financing to meet their own needs forencroachment and self-interest.