Corporate governance and performance: Evidence from Chinese private listed companies based on cash flow rights and control rights

This paper investigates the relationship between control rights, cash flow rights, and firm performance across a sample of 276 China’s private listed companies (CPC) from 2003 to 2008. This paper finds that the performance of firms with pyramid ownership structures (POS) is lower than that of firms with direct controlling ownership structures (DOS). The separation of control rights and cash flow rights, which is the main characteristic of POS, is negatively related to the firm performance. Furthermore, in order to reduce the negative influence of control rights, this paper proposes the following countermeasures: cash flow rights should be increased because it has a positive effect on the firm performance; the supervisory powers of shareholders meeting (SM) should be strengthened because it helps improve firm performance and overrule invalid decisions taken by independent directors in China. This is proved by the findings that show a positive correlation between the attendance rate at shareholders’ meetings and firm performance; moreover, there is no positive relationship between independent directors and firm performance.