The Impacts Of Pyramidal Structure Change On Corporate Performance

The pyramidal structure has received extensive attention of scholars around the world, since La Porta et al introduced "the pyramidal structure" in their study for the first time. The pyramidal structure leads to the divergence between cash-flow rights and control rights of ultimate controller. The reality of the pyramidal structure’s widely existence and its impact on the value of companies, the holding shareholder’s behavior and so on has made it one of the focuses of the research of corporate governance in China.However, there are some defects in the research of the pyramidal structure’s impact on firm performance. Firstly of all, part of the research took the divergence between cash-flow rights and control rights as descriptive indexes which is not enough for description of pyramidal structure. Secondly, the statistical data in some research is too old to make the conclusion authentic under new environment of economic development. To solve the problems mentioned above, this paper uses controlling layers and chains as descriptive indexes from both vertical and horizontal perspectives to explore the characteristic and change trend of pyramidal structure and their impacts on corporate performance and business risk.Specifically, the change of pyramidal structure needs a certain amount of time and it will have the company’s own characteristics. Therefore, this paper take the listed companies with pyramidal structure which have be operating for a certain period of time as research object to make comparisons dynamically. The panel data of this paper contains statistics of 431 listed companies in Shanghai Stock Exchange from 2009 to 2013 which has been classified. The result shows that the impact of pyramidal structure on company depends on the nature of a company. The increase of controlling layers and chains in listed state-owned enterprises leads to the decrease of both corporate performance and asset-liability ratio which is not found in listed private companies.In this paper, we further explore the relation of the pyramidal structure of listed private companies and internal capital market. With the increase of controlling layers, the nonbank loans to total assets ratio also increases. This conclusion explains the expanding trend in both controlling layers and chains in listed private companies which makes the internal capital market available.In conclusion, with the economic development, enterprises scale and the pyramidal structure expanding, the corporate governance mechanism such as the system for information disclosure, stipulations for associated transaction must be proved in step. The further understanding of the pyramidal structure will be helpful for owners, managers, regulators and investors.