Corporate Pyramid, Capital Investment and Firm Performance in China
Business groups organized by pyramids enable the ultimate shareholders to control a portfolio of firms with less cash requirement. Further, corporate pyramid induces an internal capital market and makes capital transfer more convenient within the pyramid. In China, the state and business groups control a large number of listed firms through pyramidal ownership structure. What role does the corporate pyramid play in firms’ investment decisions? What is its influence on firm performance? This paper investigates the capital investment and firm performance from the perspective of pyramidal ownership structure. We find that as the layers of corporate pyramid increases, the capital overinvestment declines. The negative relations between pyramid and overinvestment exist for both state-owned enterprises (SOEs) and non-state-owned enterprises (NSOEs), which indicate that increasing the layers within corporate pyramid reduces the likelihood of overinvestment of the listing firm and improving investment efficiency. Moreover, we show that the effects of increasing the layers of corporate pyramid on accounting performance are different for SOEs and NSOES. For SOEs, increasing the layers of pyramid results in less government interference on the listed firm and more flexibility in operate. Therefore, increasing pyramidal layers is positively related to accounting performance. While for NSOEs, pyramiding is to build an internal capital market for the ultimate shareholder’s capital investment. Although pyramid may reduce overinvestment of the listing firm, agency costs may offset the positive effect and induce a lower accounting performance.
Pyramidal ownership structure Capital investment Internal capital market Firm performance
Chao Chen Donglin Xia Song Zhu
School of Management, Fudan University Fudan University, 670 Guoshun Road, Shanghai, China 200433 School of Economics and Management, Tsinghua University School of Economics and Business Administration, Beijing Normal University
国际会议
广州
英文
1-35
2009-07-07（万方平台首次上网日期，不代表论文的发表时间）