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A comparative study of the state-owned and private governance of listed companies

Author: WangLiJun From: www.yourpaper.net Posted: 2009-03-31 03:12:31 Read:
Abstract: In this paper, a sample of listed companies from 2002 to 2004, the proportion of the largest shareholder, the relationship between financial leverage and firm value. The study found that the value of state-controlled listed companies and private control of listed companies company did not differ significantly; proportion of the value of the company was a U-shaped relationship of the largest shareholder of the state-controlled listed companies, private control of listed companies was an inverted U-shaped relationship; state control of listed companies 'financial leverage ratio value of the company negatively correlated positively related to private control of listed companies' financial leverage ratio and the value of the company. The policy implication is that the Government should continue to implement the "encounter" the strategic policy; regulatory authorities should be concerned about the source of funding of the holdings of private listed companies with a higher proportion of the largest shareholder and its behavioral characteristics, to prevent its other benefits related violations; bank loans to deal with state-owned and private enterprises alike, banks need to strengthen supervision of state-owned listed companies controlled by loans.
Keywords: major shareholders control; private listed companies; financial leverage; the value of the company
Introduction
Largest shareholder control, the study of the relationship between financial leverage both the value of the company is a hot issue of corporate governance theory, academia in recent decades has made in-depth progress. La Porta, Lopez-de-Silanes, Shleifer and Vishny (2002) pointed out that the conflict of interest between the the options relative concentration of public companies, large shareholders and external minority shareholders, such conflicts will reduce the value of the company, with the increase in the proportion of large shareholders, they are consistent with the interests of outside shareholders and reduce agency costs, the value of the company to improve [1]; Shleifer and Vishny (1997), the largest shareholder of control will have two effects, the first effect "incentive effects" (Incentive Effect), to solve the free-rider problem that is relatively concentrated ownership, large shareholders have an incentive to have the ability to oversee the company's management, so as to enhance the value of the company; the second effect against effect "( entrenchment Effect), when the largest shareholder of the lack of control over the supervision and control of other stakeholders, the interests of the shareholders and other stakeholders are not entirely consistent, the major shareholder is likely to use their power for their own personal control the right to private benefits (private benefits of control), which would damage the interests of other stakeholders, and reduce the value of the company [2]; McConnell and Servaes (1990) found that the the internal shareholding ratio and Tobin's Q inverted U type relations, when the internal shareholding ratio from scratch and gradually increase the value of Tobin's Q with its rising, and the the internal shareholding ratio of 40% -50%, and then begin to decline [3 ].
Western financial theory focuses on the corporate governance role of financial leverage. Jensen (1986) believes that debt financing to reduce the company's free cash flow, that is not the case of a positive net present value of investment projects is still retained in the firm's cash, thereby increasing the value of the company [4]; of Agion and Bolton (1992) Bank debt leads to an increase in the threat of bankruptcy of the company, and shareholders' equity after business failure sharp depreciation, which allows companies to operate in a more efficient use of funds, thus contributing to the enhancement of the value of the company [5]; Diamond (1984), as a centralized provider of funds, power and the ability to collect information, to oversee the operation of enterprises, so that the liabilities become an efficient mechanism for restraining [6].
Chinese scholars on the relationship between the major shareholders control the value of the company to be a great concern. Yongxiang and Zu-Hui Huang (1999) found that the proportion of the largest shareholder of listed companies in China with Tobin's Q between the inverted U-shaped relationship [7]; Xu Xiaodong Chen Xiaoyue (2003) show that the largest shareholder of a non- The state-owned shareholders of the company have a higher corporate value and greater profitability [8]; Bai et al (2005) study found that the proportion of the largest shareholder with Tobin's Q between the U-shaped relationship [9].
As for the impact of financial leverage on firm value, less domestic scholars research literature. Chen Xiaoyue and Xu Xiaodong (2001) study found that there is no significant positive correlation between the long-term financial leverage and corporate performance of listed companies in China [10]; Tian Lihui (2004) found that with the increase of bank lending, business efficiency and the decline in value [11].
However, we are skeptical of the research. The reason is that the literature generally does not distinguish between the nature of ownership of the largest shareholder, the largest shareholder ownership of a different nature, whose motivations and constraints facing may be quite distinct. To be confused with the different ownership types of companies, may lead to the study concluded and do not represent the true cause-and-effect relationship.
La Porta, Lopez-de-Silanes, Shleifer and Vishny (1999) use a sample of 27 public companies in developed countries, for the first time to study the nature of different types of owner largest shareholder control. China's listed companies since 2001 in the public disclosure of the annual report required to disclose its controlling shareholder and actual controller, which allows us to conditionally China's listed companies classified according to the different nature of ownership of its controlling shareholder and actual controller a comparative study. The purpose of this study is to learn from the La Porta et al (1999) study, empirical testing of the conclusions of the literature of Chinese scholars. The difference is, the nature of ownership of listed companies in China in accordance with its controlling shareholder and actual controller divided into two main types, namely, state-owned and private, as a listed company, the controlling shareholder of the comparative study of these two different types of owner stake and financial leverage and value of the company is what exactly is the relationship, whether different. Studies have shown that the state-controlled listed companies and private listed companies controlled by the value of the Company and there is no significant difference between these two types of owners to control its mechanism of action is indeed very different; state-owned listed companies controlled by its largest shareholder proportion of the value of the company U-shaped relationship, and private listed companies controlled by an inverted U-shaped relationship; state-owned listed companies controlled by its financial leverage and firm value negatively correlated, and private listed companies controlled by the positive correlation. Our research to deepen the understanding of corporate governance of listed companies in China, made a contribution to further study the behavioral characteristics of different types of owner control of a listed company and its impact mechanism.
Theoretical analysis and hypothesis development
, Major shareholders control the value of the company
China's securities market is emerging and transitional nature of most of the listed company owned by the government. In the case of the development of the market mechanism is not perfect, the support of the Government of listed companies is essential for its development. We can see that many state-owned listed company's major asset restructuring, everyone behind the shadow of the "visible hand" of government;, whether from tax relief, financial subsidies or land concessions, the government gave its control listed strong support. It can be said that, at this stage, quite a lot of the development of state-owned listed companies is still inseparable from the government with the help of the "visible hand". However, the Government also has the motivation of infringement, as administrative departments should take into consideration the overall development of a region, listed companies are often regarded as an important piece of plate to use. This time listed companies need to take many of the government's administrative objectives, such as stable employment, sources of revenue, excessive expansion of enterprise scale and so on, these goals are often inconsistent with the purpose of maximizing value.
On the other hand, in the process of reform of state-owned enterprises, the original administrative supervision rights are required to withdraw from the owner of the property, but did not build efficient capital supervision, resulting in many state-owned companies controlled by the internal, The case is also reflected in the partly state-owned listed companies. Internal control while reducing agent chain and government administrative intervention to strengthen the authority of the enterprise managers, and operators to effectively has a positive effect on the value of the company; On the other hand, due to internal only remaining control is transferred without residual claim of ownership, leading enterprises bigger motivation for their own personal gain and constantly enhance internal erosion through the transfer of assets and various other means the interests of listed companies, will inevitably reduce the value of the company.
From the above theoretical analysis shows that China's state-controlled listed companies facing administrative intervention and internal control both cases, and both intricately intertwined. Whether it is dominated by administrative intervention or internal control dominant incentive effects and against effects on the value of the company will have an impact, incentives have a positive effect on the value of the company against negative effect on the value of the company.
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