What Is External Equity?

The shareholding structure refers to the proportion of different types of shares in the total share capital of a joint-stock company and their relationships. Equity refers to the equity and the right (obligation) to be held by the stockholders corresponding to the proportion of stocks they own. The rights that can be asserted against a company based on shareholder status (identity) are equity.

What does the company have

The so-called balanced equity structure refers to the fact that the proportion of equity between the major shareholders of the company is quite close, and there is no other minority shareholder or the proportion of other minority shareholders is extremely low ^[1]

From the proposition that insider control is "when the investor cannot effectively control the behavior of managers", it can be concluded that the generation of insider control is actually related to its shareholding structure. When the company

Ownership structure is the basis of corporate governance mechanism. It determines the structure of shareholders, the degree of equity concentration and the status of major shareholders, and the ways and effects of shareholders' exercise of power. There are significant differences in the formation, operation, and performance of corporate governance models. Great influence, in other words, the ownership structure and the internal supervision mechanism in corporate governance have a direct effect; at the same time, the ownership structure is largely affected by the company's external governance mechanism. On the other hand, the equity structure also has an impact on the external governance mechanism. Indirect effect.

(I) Impact of equity structure on the internal mechanism of corporate governance

1. Shareholding structure and shareholder meeting

In the shareholding structure model where control rights can be competed, the remaining control rights and the remaining claim rights match each other, and large shareholders have the incentive to exert pressure on the manager to make them work to maximize the value of the company; In the equity structure model, the remaining control rights and the remaining claim rights do not match. The controlling shareholder has the right to cheap voting. It has neither pressure nor motivation to implement monitoring, and only uses the rights in its hands to realize its own private interests. So for a joint-stock company, different ownership structures determine whether shareholders can actively implement their rights and assume their obligations.

2. Ownership structure and board of directors and board of supervisors

The ownership structure determines to a large extent the candidates for the board of directors. In the equity structure model with controllable competition, the board of directors decided by the shareholders' meeting can represent the interests of all shareholders; Shareholders with absolute controlling position can obtain the decision power of the board of directors by monopolizing the decision power of the candidates of the board of directors. Therefore, under this equity structure model, the interests of small and medium shareholders will not be guaranteed. The same applies to the influence of the shareholding structure on the board of supervisors.

3. Ownership Structure and Managers

The influence of the ownership structure on the managerial level lies in whether there is competition for agency rights in the managerial level. It is generally believed that the excessive ownership structure easily leads to insider control, so that the agency competition mechanism cannot play a supervisory role; and in the case of high concentration of equity, the appointment of managers is controlled by large shareholders, which also weakens the agency power Relatively speaking, the existence of a relatively controlling shareholder is more conducive to the replacement of managers under conditions of perfect competition.

In short, under the controllable shareholding structure, shareholders, directors (or supervisors) and managers can perform their duties and perform their respective functions to form a healthy balance of checks and balances, so that the internal control mechanism of corporate governance can be brought into play. Under the non-competitive ownership structure, the opposite is true.

(Two) the impact of equity structure on the company's external governance mechanism

The company's external governance mechanism adds a "firewall" to the effective operation of the internal governance mechanism, but even if the external governance mechanism is further developed, if the ownership structure is deformed, the company's external governance mechanism will be useless. However, it is believed that it is difficult to explain who has the cause and who has the effect on the internal and external governance mechanisms of the company. For example, a set of external market governance mechanisms has been established in the form of legislation. As new shares continue to be issued or merged, the ownership structure may become excessively dispersed or concentrated, which may easily cause the company s management to inside people control and make the company control The external market governance mechanism of the rights market and professional manager market cannot work; another example is that due to the phenomenon of "inside people control", the company's operators often need to "spend money to buy opinions" in order to cover up personal privacy. It will cause the certified public accountant to go back and forth in the gap between profit and risk, and make the external social governance mechanism distorted.