Research On The Relationship Between The Pyramidal Shareholding Structure And Enterprise Value

Contemporary research results show that the Shareholding structure of a large numberof listed companies presents the “pyramid” type of a complex chain. This type of theShareholding structure consequently brings the separation of the control rights and the cashflow rights of the ultimate controllers. This phenomenon of separation deepens the ultimatecontrollers’ infringement extent on the interests of small shareholders, which results inlower enterprise value. Private listed companies are important power of Chinese capitalmarket. According to our statistics, there has had1194private listed companies of ChineseA-share market up to the end of2011, and the rise of the SME board and the GEM boardfurther promotes the development of Chinese private enterprises. In view of the importantrole of the private listed companies play in Chinese capital market, and the ownershipstructure’s influence on those companies’ value can not be ignored. It would have positivesignificance to improve the equity structure, corporate governance, enterprise performanceof private listed companies, if we could study the relationship between pyramidshareholding structure and the value of private listed companies.This paper firstly defines some related important concepts, and then detailedlyexamines the results of previous studies and some fundamental theories. Secondly, we takean comprehensive preliminary study on the status of the pyramidal shareholding structureof the private listed companies in China. Thirdly this paper selects unbalanced panel datafrom2009to2011of the private listed companies who take pyramidal shareholdingstructure. We take TOBIN’Q and ROA as the proxy variables of the enterprise value.Thepyramidal shareholding structure is decomposed into several indexes, such as the cash flowright, the separation of the cash flow right and the controlling right, longitudinal level andthe horizontal dimension of the pyramidal shareholding, the listing method, ownershipconcentration, the power balance. Then the paper establishes the multiple linear regressionmodels of these indexes and the enterprise value. We study the relationship of thepyramidal shareholding structure and corporate value. Additionally, the paper uses thedisposition effect model to examine the endogenous problem of the pyramidalshareholding structure, which provide corroboration basis for regression analysis results.The results of the empirical analysis indicate that, there shows the inverted U-shapednonlinear relationship between the cash flow right of the ultimate controller and theenterprise value; but the firm value falls when the degree of the separation between cashflow right and control right increases; longitudinal level of the pyramidal shareholding structure has no significant effect on the enterprise value; the horizontal dimension and theenterprise value shows a positive correlation; the list method influence on enterprise valueis not significant; there is a U-shaped relationship between the ownership concentrationand enterprise value; the power balance and the enterprise value also shows a positivecorrelation.Based on the above conclusions, this paper puts forward following policyrecommendations for private listed companies: limit the cash flow rights of the ultimatecontroller; reduce the degree of separation between cash flow right and control right;improve the level of ownership balance, strengthen the market supervision of thecontrolling shareholder of the private listed companies; improve the legal protection ofsmall investors, and so on.