Research On Financial Risks Of Cross-Shareholding In The Listed Companies

The cross-holding phenomenon was originated in the 1990s, in order to solve the problem of state-owned enterprises’ joint-stock reform, through cross-shareholdings making rapid expansion of the company’s assets to meet the listing requirements. With the increasing complexity of the ownership structure of listed companies, cross-holdings as a means of capital operation and expansion of company sizes had become a special ownership structure prevalent. Cross-shareholdings of listed companies had attracted more and more academic attentions. Cross-shareholdings between enterprises also enabled enterprises to achieve greater control with fewer capital assets, strategic alliances to help companies cope with the complicated economic situation changes, empowerment and sustainable development capacity of enterprises to cope with risks. However, the inappropriate use of cross shareholdings also leads to structural imbalances in governance, capital inflated, and potential risks, such as the stock bubbles, which may triggered the serious financial risks.This thesis analyzed the potential impact of cross-shareholdings of listed companies on the financial risks within the framework of the standard research, combined with financial theory and practical examples. From the areas of corporate governance, stock market, and financial operations to discuss the behavior of cross-shareholdings of listed companies and the impacts for financial risks, and proposed three research hypothesis. The empirical research was based on 2010-2013 data samples of listed companies in China, built cross-holdings financial risk model and improved cross-holdings financial risk model, followed by statistical analysis of a sample of variables, empirical results obtained model, for different empirical results give a different interpretation of the analysis, concluded on empirical research. The empirical results show:Firstly, the cross-shareholdings of could offset the negative impact on their financial risk, but the absolute value of the regression coefficient is small, indicating that the extent of the offset impact on listed companies’ financial risk is not large; Secondly, the impact of cross-shareholdings on the financial risk of listed companies were different for different industries, the impact was the most significant for manufacturing enterprises; Thirdly, with a higher proportion of cross-shareholdings, cross-shareholdings of listed company’s financial risk decreased. Cross-shareholding enterprises could choose increase in the proportion appropriately of cross-holdings, in order to resist the potential impact of financial risk.The empirical results contained the positive impacts of the cross-shareholdings of listed companies against the financial risks. But in practice, the inappropriate cross-shareholding behaviors may also increase the finance risk of the companies. Cross-shareholding ratio is not the higher the better. The case analyzed the cross-shareholding of Shanghai Hua-yi Group. The result showed that under certain conditions, cross-shareholdings could do better for the stability of the business, enhance profitability, facilitate financing, it could had some beneficial effects for the precaution of financial risks. But the inappropriate use of cross-shareholdings can also cause the risk spread to other companies quickly, resulting in earnings downturn of affiliated companies and industries, it can also cause severe financial distress, financing difficulties, and even systemic risks.This thesis analyzed the potential impact of cross-shareholdings of listed companies on the financial risks from China’s national conditions, serviced as the guidance for the listed companies to fully understand the advantages and disadvantages of the cross-shareholdings behaviors. It could help listed companies to optimize their cross-shareholding behaviors. It could also service as a reference for the regulatory authorities to regulate the cross-shareholding behaviors, could also protect the interests of small investors better.