Abstract: Based on the theory of capital allocation and assignment in companies,from the perspective of risky assets and safe assets,this paper incorporates the factor of large shareholders into real option model to analyze the effect of cash-flow rights of the large shareholders and the separation of cash-flow rights from control on the capital allo cation and firm valuations.The conclusions show that,capital allocation efficiency is positive correlative with the cash-flow rights of the large shareholders,but negative correlative with the separation of cash-flow rights from control; the corporate value is positive correlative with the cash-flow rights of the large shareholders,and also negative correlative with the separation of cash-flow rights from control.Otherwise,we find the large shareholder's expropriation leads to listed companies inefficiently decrease risky asset investment.Moreover,it is also one of the most important reasons leading to distortion and inef ficiency of capital allocation.

Key words: large shareho lder’s expropriation, capital allocation, portfolio investment, separation of cash-flow rights from control