Ultimate ownership and firm performance: further evidence from Chinese private listed firms

摘要

Most of Chinese listed firms have a ultimate controlling shareholder. This study investigated both the impact of cash flow right and the divergence between the control right and the cash flow right of ultimate shareholder on firm performance, and the constraint effect of free cash flows on ultimate controlling shareholders' entrenchment behaviors. We found that the cash flow right and firm performance are significantly positively related, and there is an "incentive effect" for ultimate controlling shareholders; the divergence between the control right and the cash flow right is significantly negatively associated with firm performance, and ultimate controlling shareholders have an "entrenchment effect" on firms; Ultimate shareholders' entrenchment effect significantly shrinks when the cash flow right is high. Further, we found that ultimate shareholders' entrenchment behavior occurs only when they have the "ability" and "motive", and the "opportunity" of having sufficient free cash flows. Therefore, lower free cash flows can efficiently constrain such entrenchment behaviors of ultimate controlling shareholders.