Ultimate Controller Portfolio Concentration,Stock Returns And Hedge Strategy

With the development and innovation of joint-stock companies,more and more companies are no longer simply shareholding models of direct shareholders.In order to adapt to the diversification,network and globalization of business activities,large shareholders usually form the control of the Target Corp by setting up subsidiary companies,participating companies and mergers and acquisitions.In this way,capital occupation is less,which helps large shareholders to control more resources with equal amount of capital,so as to maximize their interests.This kind of "one controls more"model is particularly typical in some foreign family holding enterprises.With the gradual development of the socialist market economy,a large number of powerful capital groups have appeared in our country,and the same mode is also used to achieve rapid expansion.In 2004,the CSRC began to realize the importance of the research and supervision of the ultimate controller's behavior on strengthening corporate governance,and in the year clear that all listed companies must disclose the information of the final controller in the annual report of the year.The academic circle has also begun to discuss this model in depth,but at present,the domestic and foreign scholars focus on the following aspects:(1)the characteristics of shareholders who controlling the Target Corp directly and the impact on the company value,including the Proportion of the first shareholders,the degree of separation among controlling right and the right to cash flow.And other characteristics research;(2)the type of final controller,the way of controlling and its impact on company value.However,there are few quantitative studies on the investment behavior of the ultimate controller.This paper,from the perspective of portfolio concentration,explores the impact of the ultimate controller investment behavior on the future stock investment return of the company.This study will help to enrich the theoretical discussion of the ultimate controller's investment behavior,at the same time,provide an explanation for the prevailing phenomenon of the ultimate controller in our country,provide reference for the corporate governance of the ultimate controller,and provide the relevant suggestions for the government departments to supervise the ultimate controller,and reveal the ultimate controller for the investors who is enabled to better maintain their own investment interests.This paper uses Herfindahl-Hirschman Index(HHI)to measure the concentration of ultimate controller portfolio.,by examining the 2009-2015 China A-share listed companies' data,this paper finds that the higher the ultimate controllers portfolio concentration is,the higher future stock returns of the listed companies.The result shows that,in the study to find the mechanism,the company whose the ultimate controller has high portfolio concentration has the better future performance,the higher quality of internal control and the lower agency cost.By improving the ultimate controller portfolio concentration,the value of the company is enhanced.Based on these conclusions,this study builds a hedge strategy by the portfolio concentration,buying the companies whose ultimate controller with high portfolio concentration,in the sale of the companies whose ultimate controller with low portfolio concentration.The results showed that the hedge strategy can get significant excess returns in short and long term.This shows that investors in China's stock market have not fully intermalized the information of ultimate controller portfolio concentration.In the following inspection,we find that the hedge strategy is more effective in the firms with indirect control than those with direct control,the hedge strategy is more effective in the firms with low information transparency than those with high information transparency.