Empirical research on turnarounds of financial distress firms based on ultimate control

Using a firm-level dataset of financial distress firms from China's A-share stock market over the period of 2001-2004, this paper examines the effects of ultimate control rights, cash flow rights and nature of property rights on turnaround of financial distress firms. We find that both ultimate control rights and cash flow rights are associated with positive "incentive effectrdquo. And the ultimate controlling shareholders have power over firms significantly in excess of their cash flow rights through the use of pyramids. The deviation degree of the ultimate control rights and cash flow rights is negatively related to the probability of turnaround. And there are significant differences between two styles of property rights. State-owned property rights will do good to firm turnaround.