Investor Protection,Ownership Concentration And Corporate Valuation

Since 1980s,the phenomenon of ownership concentration are generally existed in many countries,the second type of agency problem caused by the interest conflicts among large shareholders and minority shareholders developed into a core issue of corporate governance,and investor protection problem caused by the second type of agency problem has simultaneously become a hot academic issue.LLSV has documented that how well investors are protected by law had deep influence in listed companies' performance and dividend policy,in the breadth and depth of capital markets,etc.Thus,Legal supervision plays a key role in companies' growth,the healthy development of national capital markets,and the sustainable development of countries'economy.Especially with the increasingly intense competition in global economy,the deepening of economic prosperity is inseparable from reasonable and effective protection for investors'legitimate interests.In emerging capital markets,as corporate governance and legislation are imperfect,the expropriation by large shareholders to minority shareholders is more serious,and investor protection develops into a core problem for the society.Chinese capital market is a typical emerging capital market;its establishment is essentially "a tool for state-owned companies' reforming and a channel for direct financing".In such finance-oriented market,the formulation of laws and regulations are for those financers,ignoring investors' interests,and lack of investor protection.On the other hand,Chinese special equity division system leads to one shareholder domination structure in listed companies,and internal governance mechanism is invalid which cannot effectively protect the interests of minority shareholders.Therefore,lacking of integrity,insider trading,illegal occupation of funds and other damages to the interest of minority shareholders are frequently found in our capital markets,seriously affecting the value of listed companies,and have become the main resistance to the development of capital market and listed companies.So,the investigation into the value relevance of investor protection has both theoretical and practical significance.This paper will investigate in the value relevance between investor protection and ownership structure in listed companies,that is to study the influence of investor protection index(hereinafter referred to as IPI)and ownership concentration to market-to-equity ratio(hereinafter referred to as MTE)in listed companies through corporate level.On March 2007,China Securities Regulatory Commission(Hereinafter referred to as CSRC)required listed companies to publish "Self-examination report and Rectification plan"(hereinafter referred to as SR&RP)in the special investigation of listed companies' governance.SR&RP sets 22 questions covering anti-director rights,information disclosure and investor protection measures,requiring listed companies to deeply examination their investor protection enforcement.The large sample survey by CSRC gives us the opportunity to investigate the joint influence of investor protection degree and ownership concentration to corporate value based on our legal condition using empirical approach.IPI is gotten from SR&RP.This paper takes all listed companies which published SR&RP in either Shanghai Stock Exchange or Shenzhen Stock Exchange as sample.This paper uses empirical research methods supplemented by necessary theoretical explanations and instructions in investigating the relationship between investor protection degree,ownership concentration and corporate value in listed companies.This dissertation has five parts:Part ?:Introduction.As the starting point of the full paper,it describes the research problem,significance,structure and methods.Part ?:Theory,literature review,and the paper's theoretical hypothesis.This part provides theoretical basis for the full test.First,it gives a brief overview of investor protection theory and its development history.Second,sorting the literature in two aspects,the relationship between investor protection and corporate value,and the relationship between ownership concentration and corporate value.Finally,summarizing the measurement of investor protection degree used in these studies.It is found that foreign scholars mainly investigate the influence of investor protection to corporate performance in different countries and different law conditions in national level.Part ?:Research design.It's the most important part of this text,introducing the sample collecting procedure,and defines variables.Also,linear regression models are established in this part.Part IV:Empirical analysis.This part gives descripti've statistics and regression analysis for the whole sample and draws following conclusions.At present we have low investor protection,and ownership concentration of listed companies is significantly negative correlated with DPI and MTB.The invalid checks and balances system in our capital market has negative effect to interest protection of minority shareholders and corporate value.And investor protection in listed companies can decrease the negative influence of ownership concentration to market to equity ratio.Part V:Conclusions and policy advices.Based on the conclusions of our research,combined with the realities of our country,we give four advices to enhance investor protection.First,optimize ownership structure of listed companies,and form a multiple large shareholders system.Second,clarify security legislation,especially consummate responsibility system.Third,consummate the security civil compensation system.Fourth,enhance minority shareholders'knowledge about their rights.Finally,we describe the innovation and shorts of our research,and also give some advices for future research.The contribution of our study is the new perspective that we investigate the relationship between investor protection and ownership concentration using investor protection degree.Foreign researches about investor protection mainly did in national level and using LLSV's national research method.But this method is proper only in measuring the difference of investor protection of different countries.Domestic scholars often use corporate governance structure instead of investor protection degree.We think,in certain law condition,the difference of investor protection comes mainly from investor protection enforcement and corporate management structure.Certainly,this dissertation can still be improved in some aspects.Investor protection have rich connotations,our investor protection index can not reflect all factors,so the measurement in the difference of investor protection degree is relative.Tobin Q is not always effective in measuring corporate value in our capital market,so choosing market to equity ratio as corporate value index is some kind of subjective.Whether the conclusions of our paper are still established in time-series study is unknown because we only did horizontal analysis using cross-section,data of year 2007,lacking of vertical analysis.But our paper has large sample containing all listed companies by the end of year 2007,so it is of high reference value.Our dissertation gives a preliminary discussion through the angel of investor protection enforcement,and we believe,designing a index to continuously measure investor protection degree can not only horizon find differences of investor protection among companies,but also investigate the influence of investor protection enforcement to corporate value in different stages.