The Impact Study Of Ultimate Controlling Shareholders And Institutional Shareholders On Cash Holdings

In fact,the highly diversified shareholding situation is rare in the modern company's equity structure. Most of the shares of modern companies are concentrated in the hands of the governments and families, which hold the shares of the target company through the pyramid ownership structure. Their control of the target company is significantly more than the ownership they hold of the company (i.e. cash flow rights). This kind of shareholders are defined as the ultimate controlling shareholders. The separation of their ownership and control rights resulting in the appearance of the second type of agency problem. That is the agency problem between ultimate control of shareholders and small shareholders. Because of the existence of the separation, the ultimate controlling shareholders have the ability, and the motivation to encroach the interests of small and medium shareholders. In order to solve this type of agency problem, institutional investors who plays an independent role of the controlling shareholder and management as third parties, is considered to be one of the solutions of this kind of problem.Compared to the small and medium shareholders, institutional investors have advantages among capital, information and many specialized areas. They are more able to use the interests of shareholders actively. They also have the ability to supervise the controlling shareholder, improve the performance of corporate governance, thereby enhancing the company's performance. We studied the separation of ownership and controlling rights of ultimate controllers, shareholding ratio of institutional investors, and their relationship with the company's cash holdings. We also studied how the institutional investors impact the relationship between ultimate controllers and the cash holdings. We hope to get the corporate governance empirical evidence, in order to understand whether institutional investors can solve the existence of the second type of agency problem in the company. But the results are not optimistic. Our study found that the greater the separation of two rights is, the higher the cash holdings are. So does the institutional investor's holdings.Institutional investors will enhance the impact of the ultimate controlling shareholder on cash holdings. That means institutional investors do not inhibit, on the contrary enhance the possibility that ultimate controlling shareholders plundered the company's assets.According to the research results, we argues that enterprises should further improve the internal supervision and management system, and their financial management mechanism.They should also increase the transparency of the company's information in order to encourage small and medium shareholders to supervise the controlling shareholder and managements. In addition, China should establish a more standardized and orderly stock market, to encourage shareholders do the long-term investment, so that they can participate in corporate governance actively.