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Empirical evidence of the ownership structure and corporate risk analysis

Author: QianZhongHua From: www.yourpaper.net Posted: 2009-06-11 12:35:12 Read:
Abstract: The failure of corporate governance mechanisms leading source of enterprise risk. The relationship between the ownership structure and corporate risk of this study, described from three aspects of the degree of ownership concentration, the nature of the controlling shareholder and shareholders active ownership structure, while using Z-index and ROE fluctuations as enterprise risk metrics. The results show that ownership structure can really affect corporate risk, the degree of ownership concentration the lower the risk the higher the enterprises, state-owned listed companies significantly lower than the risk of non-state-owned listed companies, shareholders of the level of activity the lower the risk the higher the enterprise.
Keywords: corporate governance shareholding structure of enterprise risk Z index

In recent years, many well-known enterprises at home and abroad sudden closure of the sensational corporate scandals one after another. Despite this there are many explanations, but ignore the risk in the development of business is undoubtedly one of the important reasons. The corporate governance mechanism of failure is what led to the root causes of the enterprise risk.
Ownership structure as a major component of the corporate governance, internal governance, is bound to affect your risk. Numerous studies indicate that the ownership structure will affect the value of the business (Shleifer and Vishny, 1986; Johson, 2000; Zengquan Li, 2004), but different conclusions. Listed companies in China, our controlling shareholder phenomenon is more prominent, and the use of related party transactions, financial guarantees, etc. "hollowing out" of listed companies, "hollowed out" is a listed company lost a lot of cash resources due to the other corporate guarantees increases the potential liquidity risk (Zengquan Li, 2004). Based on the relationship between this study shareholding structure and corporate risk.
The significance of this study is manifested in two aspects: on the one hand, from the theoretical point of view, research on the relationship between ownership structure and corporate risk improvement and development of existing enterprise risk management theory, for in-depth view of the root causes of corporate financial risk a theoretical foundation; On the other hand, from a practical point of view, the relationship between ownership structure and corporate risk research firm helps investors to properly assess the situation of an enterprise, reduce investment losses, to help banks and other financial institutions, a reasonable choice of lenders object, effective assessment customer enterprise risk, reduce bad and doubtful debts, help regulatory agencies to strengthen enterprise risk ex ante regulation, improve regulatory efficiency, contribute to a reasonable choice of governance structure of listed companies, effectively reducing the risk.

Literature review and research hypotheses

(A) ownership concentration and enterprise risk
In recent years, scholars concerned about the ownership structure of many countries in the world is not dispersed but relatively concentrated, resulting Berle-Means theorem questioned and led to the new craze of corporate governance research. Concentrated shareholding structure changed the center of gravity of the entire corporate governance research topics and direction. In the case of ownership concentration, the controlling shareholder of master control of the company to ensure its basis the self-willingness regulation of listed companies operating decisions, which also led to the emergence of another type of agency problems, controlling shareholder and minority shareholders agent conflicts. Since the objective function of the controlling shareholder and minority shareholders are not exactly the same, the controlling shareholder of the more inclined to seek self-exclusive right to control private benefits, rather than the other benefits that can be shared with minority shareholders. In particular, the controlling shareholder of the encroachment on the interests of small shareholders in the legal and corporate governance mechanisms for the protection of minority shareholders is inadequate or inefficient especially in emerging market countries (La Porta et al, 1999). Johnson et al. Lists the controlling shareholder of the occupation of the interests of minority shareholders in several ways. La Porta et al (2002), the high concentration of the options would reduce the expropriation of minority shareholders. Jiang Wei and Shen Yi-feng (2005), the orientation of the interests of the largest shareholder percentage increase means that the major shareholders in listed companies more inclined to "synergies". Therefore, this paper considers the controlling shareholder equity ratio is higher, the less risk of listed companies, the interests of the convergence effect; contrary, when the controlling shareholder equity ratio is low, the controlling shareholder of the hollowed out the motives of the listed companies comparison strongly higher risk of listed companies. In this paper, the following research hypothesis 1:
H1: other things being equal, the ownership concentration of listed companies and corporate risk is inversely proportional.
(B) the nature of the controlling shareholder and enterprise risk
In both studies, the controlling shareholder of First directly into state-controlled and private control (Liu Shao Jia, 2003), another is further subdivided into the central control, local control and private control of listed companies (Zeng Qingsheng, 2004), and the study concluded that the three types of control of listed companies is inconsistent. China's private enterprises due to system lead to a more serious problem of financing constraints, the financing difficulties of the financial support of the state-owned enterprises and state-owned enterprises such support from the state-owned financial system rigidity dependence (Zhang Jie, 2001). Financing constraints faced by private enterprises, this paper considers a higher risk of relative state-owned enterprises, private enterprises, this paper Hypothesis 2:
H2: other things being equal, the risk of private listed companies was significantly higher than the listed companies controlled by local governments.
(C) shareholders of the level of activity and enterprise risk
Zhang Yun (2008) using the data of listed companies in China found that the number and proportion of independent directors within one year shareholders' meeting is related with the improvement of the proportion of independent directors, the general meeting of shareholders of an increase in the number of more minority shareholders join the discussion on the operation and management of the company by the shareholders in a general meeting. This paper argues that in the context of our controlling shareholder and ultimate control of the control, to convene a general meeting to resolve the agency costs between controlling shareholders and minority shareholders has a positive meaning. This article assumption 3:
H3: other things being equal, shareholders Activity and enterprise risk significantly negatively correlated.

Sample selection and study design

(A) sample selection
1999-2006 interval, the Shanghai A-share listed companies as samples, at the time of the study excluded ST, * ST companies and financial enterprises. Finally, the chapter received a total of 4292 observations sample. All data from the the Xenophon Information Services Limited CCER Chinese company listed on the general financial databases and GTA database CSMAR. All the data using Stata 10 software processing.
(B) study design
Enterprise risk metrics. At home and abroad on enterprise risk is mainly divided into three areas: the volatility of financial indicators as a measure of corporate risk; financial early warning model; market risk measure (VaR). Domestic scholars use the second method to build a financial early warning model to measure risk (Chen Jing 1999; Wu Shinong-Luxian Yi, 2001; Yang Shue, 2003). This paper by Altman (1968) Z index and the volatility of the return on net assets are two ways to measure risk, respectively for Risk1 and Risk2 see specific formula (1) and (2):
Riks1 = 0.012 กม working capital x 100 / total assets 0.014 กม retained earnings x 100 / total assets 0.033 กม EBIT x 100 / total assets 0.006 กม total stock market value / book value of liabilities 0.999 กม sales revenue x 100 / total assets (1)
The (2)
(2) the selection of variables. There are three main explanatory variables of this article, the ownership concentration, the proportion of the largest shareholder (Vote) to represent ownership concentration; Second, the nature of the controlling shareholder, the paper setting dummy variables Holder, if the controlling shareholder is the state-owned compared to 1, otherwise 0; the shareholders Activity Level (Gdmeet), to convene a general meeting within one year the number of shareholders of the level of activity. Reference to domestic and foreign research, we selected the following control variables: total return on assets (ROA): Net profit / average total assets. This indicator reflects the profitability of the enterprise situation. The higher the value, means that the stronger the ability of enterprises to use the assets for earnings, its exposure to risk the possibility of the lower. Therefore, the projected total return on assets and enterprise risk was negatively correlated. -Book ratio (MB): Market value of assets / book value of assets. The PB ratio reflects the company's future development capacity. The higher the index value, the greater the likelihood of future growth means companies. Therefore, this paper estimated PB than a positive correlation between corporate risk. Firm size (SIZE). The larger the scale, the more vulnerable to external investors' attention, the lower the level of information asymmetry, and their relatively low risk of bankruptcy. Therefore, this prediction scale enterprises and enterprise risk negative correlation between the total assets of the natural logarithm scale enterprises. Asset-liability ratio (LEV). Asset-liability ratio reflects the debt ratio, the higher the debt ratio, the higher the risk of business enterprise, so we select the ratio of total liabilities to total assets as one of the control variables. Growth (Growth). The faster the company's growth, due to internal management, external financing constraints, the company's fall into risk the greater the company's growth is also one of the important factors that affect the company's risk. In this paper, the growth rate of the company's main business income to represent the company's growth. Control variables for the year (Year): dummy variables. Industry control variables (Ind): dummy variables. Regression model. In this paper, the basic regression model formula (3):
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