Abstract

http://ssrn.com/abstract=686582
 
 

References (38)



 
 

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The Emergence of Corporate Pyramids in China


Joseph P. H. Fan


The Chinese University of Hong Kong (CUHK) - School of Accountancy

T.J. Wong


The Chinese University of Hong Kong (CUHK) - School of Accountancy

Tianyu



Feburary 2005


Abstract:     
We examine the pyramidal ownership structure of a large sample of newly listed Chinese companies controlled by local governments or private entrepreneurs. Both types of the owners use layers of intermediate companies to control their firms. However, their pyramiding behaviors are likely affected by different property rights constraints. Local governments are constrained by the Chinese laws prohibiting free transfer of state ownership. Pyramiding allows them to credibly decentralize their firm decision rights to firm management without selling off their ownership. Private entrepreneurs are constrained by their lack of access to external funds. Pyramiding creates internal capital markets that help relieving their external financing constraints. Our empirical results support these conjectures. Local governments build more extensive corporate pyramids when they are less burdened with fiscal or unemployment problems, when they have more long-term goals, and when their firm decisions are more subject to market and legal disciplines. The more extensive pyramids are also associated with smaller underpricing when the firms go public. Entrepreneur owners construct more complex corporate pyramids when they do not have a very deep pocket - as indicated by whether they are among the top-100 richest people in China.

Number of Pages in PDF File: 46

Keywords: Pyramid, Ownership Structure, China

JEL Classification: G32, L22

working papers series


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Date posted: March 25, 2005  

Suggested Citation

Fan, Joseph P. H. and Wong, T.J. and Tianyu, The Emergence of Corporate Pyramids in China (Feburary 2005). Available at SSRN: http://ssrn.com/abstract=686582 or http://dx.doi.org/10.2139/ssrn.686582

Contact Information

Po Hung Joseph P. H. Fan (Contact Author)
The Chinese University of Hong Kong (CUHK) - School of Accountancy ( email )
Shatin, N.T.
Hong Kong
(852) 26097839 (Phone)
(852) 26035114 (Fax)
Tak Jun Wong
The Chinese University of Hong Kong (CUHK) - School of Accountancy ( email )
Shatin, N.T.
Hong Kong
852.2609.7750 (Phone)
No contact information is available for Tianyu
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