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Ultimate Shareholders' Portfolios and Risk Distribution: Risk Shirking or Risk Sharing?

【Authors】
WANG Hongjian, TANG Taijie & LIU Ziwei
【WorkUnit】
WANG Hongjian(Nanchang University,330031)
TANG Taijie(Peking University,100871)
LIU Ziwei(The University of Auckland,512026)
【Abstract】

A number of listed companies controlled by the same ultimate shareholder are regarded as a portfolio, which can diversify risks. It is an issue worth exploring that how the portfolio influences related companies' risk diversification. We find that well diversified portfolios help increase the risk-taking level of the companies concerned;the companies deemed to have less importance in ultimate shareholders' portfolios can undertake riskier projects. This is about risk transfer. The more diversified the portfolio is,the higher value the related company will have. Compared with the less important companies, those with much importance will have higher value. It is consistent with the risk distribution and risk transfer behavior. Further test shows that the more diversified the business of the enterprise within the ultimate controller portfolio is, the greater risk-taking ability it will have. The paper not only broadens and deepens the application of the portfolio theory in the practice of ultimate shareholders controlling a number of companies, but also reveals the mechanism of risk distribution in ultimate shareholders' portfolios and how it influences corporate values. It also has important implications to market reform and construction.

JEL:G11, G32

【KeyWords】
Ultimate Shareholders' Portfolios,Risk Sharing,Risk Shirking,Investment Diversification