A Study On Relationship Of Pyramid Equity Structure And Corporate Value

In the late 1990 s, La Porta carried on a research on equity structure of listed companies in many developed countries around the world, and the result is completely different from public’ expectation. He pointed out that the equity of listed companies is not as dispersive as expected. In contrast, the concentration of ownership is very common in those companies. And most of them have ultimate controlling shareholders. In order to control subordinate enterprises, the ultimate controlling shareholders often use pyramid equity structure to build a complex control chain, which leads to the separation of the cash right and the control right. Theoretical studies have shown that the separation of the two rights produces serious agency cost which is very perplexing. The name of this mysterious and complex organizational structure is pyramid equity structure.As in the cases of other countries in the world, ultimate controlling shareholders in our country often use pyramid equity structure to control companies within the group. As an important component of national economy, the development of listed companies plays a decisive role in the orderly development of capital market, and is closely linked to the daily life of every one. Therefore, it is necessary to study the pyramid ownership structure of Chinese listed companies. The analysis of its causes and its influences on corporate value not only helps to deepen the understanding of pyramid equity structure, but also is conducive to the development of listed companies,control of the regulatory department and social stability. Is this ownership structure relevant to corporate value? And how are they related? Is the separation of these two rights relevant to corporate value? Will the properties of ownership further influence the discount extent of corporate value? These problems become the focus of study in this article.This paper applies principal-agent theory, corporate value management theory and private benefits of control hypothesis to analyze the relationship between pyramid equity structure and corporate value, and it reaches the following conclusions based on an empirical analysis of listed companies’ annual reports from 2011 to 2013 in ShangHai and ShenZhen Stock Exchange:(1) Control right is negatively related to corporate value under the premise of pyramid equity structure. With the increase of the control right, ultimate controlling shareholders have the ability and motivation to plunder corporate resources, which eventually leads to a decline in corporate value.(2) The separation of the two rights has a negative correlation with corporate value under the premise of pyramid equity structure. The negative effect of the degree of the separation of the two rights to corporate value is more obvious in private listed companies. Regression analysis results reveal that the lower the degree of separation, the greater the enterprise value. Two rights’ separation renders ultimate controlling shareholders gain larger control right with smaller cash flow right. Controlling shareholders get more private benefits with lower costs.This paper consists of five parts. Part 1 is an introduction to research background and significance, writing ideas, research methods, and framework. Part 2 is the literature review, which mainly focuses on explanation of the purpose of pyramid equity structure and the relationship between the separation of the two rights and the corporate value under the premise of pyramid equity structure. Part 2 summarizes domestic and foreign research status and finds out the research fundamentals and problems. Part 3 is a theoretical analysis of concepts, which leads to the analysis of how pyramid equity structure influences corporate value, the analysis of relationship between the separation of the two rights and corporate value and finally presents the theoretical hypothesis. Part 4 is about empirical analysis, including the selection of samples and data sources, the definition and description of variables in the paper, descriptive statistics of sample data and result of multiple regression analysis, which verifies previous hypothesis. Part 5 reaches a conclusion based on the above theoretical and empirical analysis, gives related proposals for future research and points out shortages of this paper.