Abstract
Using a unique sample of privately-owned listed enterprises, this paper studies the impact of pyramidal ownership on firm value in response to the Share Split Reform announcement in China. By allowing the controlling shareholders to trade their shares until the lock-up period expiated, this reform was aimed to resurrect controlling shareholder’s incentives without firm-level profitability shocks being triggered. I find a negative effect of excessive control rights on market responses and a positive effect on the occurrences of post-reform tunneling. The findings are consistent with the view that the ownership separation aggravates the agency problems of controlling insiders.