Impacts Of Ultimate Control Rights On Dynamic Adjustment Of Capital Structure

Corporate capital structure decisions have been always an important topic in the corporate finance field. In recent years, along with continuously further studies, scholars have gradually realized that discussions on traditional static state theory to issues of capital structure have some limitations. Therefore, the focus is turned to dynamic adjustment process of capital structure. Some studies have already mainly investigated the impacts of both sides of financial features and macro-environment on dynamic adjustment of capital structure. However, fewer scholars have studied those related issues from an angle of view in governing structure. With respect to current situation of China capital market, the ownership concentration is commonly seen in these listed companies and the ultimate control rights are existed in many companies. The ultimate control person may have serious principal-agent conflicts with minority shareholders in the process of controlling those listed companies via pyramid structure, thereby behavioral decisions may change enterprise’s capital structure decisions and then influence the allocative efficiency of the whole capital market. Therefore, studying the impacts of ultimate control rights on dynamic adjustment of capital structure has some certain theoretical and realistic significance.This paper has reviewed the fundamental viewpoints and study outcomes regarding to ultimate control rights and dynamic adjustment of capital structure; and proposed the research hypothesis accordingly. In the section of empirical analysis, this paper has taken listed companies between 2005 and 2014 in China as samples to study the impacts of ultimate control rights and dynamic adjustment of capital structure from the speed of capital structure adjustment and the degree of deviated target levels of capital structure. The following important conclusions have been worked out during the research process. (1) In the aspect of speed of capital structure adjustment:the improvement of cash flow and control rights will beef up the interest tendency between ultimate controlling shareholder and minority shareholders thereby stimulating him/her to lift up the company’s operational efficiency by supporting behaviors. The speed of adjustment is increased along with decreased internal adjustment costs. The enhancement of separating extent of ownership and controlling right means aggravated agency conflicts between the ultimate controlling shareholder and minority shareholders. The speed of adjustment is decreased along with increased internal adjustment costs. (2) In the aspect of degree of deviated target levels of actual capital:the supporting behaviors of ultimate control person have little influence on the deviated target levels of actual capital, but the asset stripping behaviors may make the degree of deviated target levels of actual capital go bigger under the conflicts of interests. This paper has proposed a few suggestions at the end with respect to ease the principal-agent problems between the ultimate controlling shareholder and minority shareholders.