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Tunneling and propping up: An analysis of related party transactions by Chinese listed companies

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  • Cheung, Yan-Leung
  • Jing, Lihua
  • Lu, Tong
  • Rau, P. Raghavendra
  • Stouraitis, Aris

Abstract

We examine a sample of related party transactions between Chinese publicly listed firms and their controlling shareholders during 2001-2002. Minority shareholders in these firms seem to be subject to expropriation through tunneling but also gain from propping up. On balance, there seems to be more tunneling than propping up. Both types of firms have larger state ownership compared to the rest of the Chinese market but firms that are propped up are larger and have larger state ownership than firms subject to tunneling. Propped up firms are more likely to have foreign shareholders and to be cross-listed abroad compared to firms that are subject to tunneling. Propped up firms also tend to have worse operating performance in the fiscal year preceding the announcement of the related party transaction. Finally, we find that related party transactions representing tunneling are accompanied by significantly less information disclosure compared to related party transactions representing propping.

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Bibliographic Info

Article provided by Elsevier in its journal Pacific-Basin Finance Journal.

Volume (Year): 17 (2009)
Issue (Month): 3 (June)
Pages: 372-393

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Handle: RePEc:eee:pacfin:v:17:y:2009:i:3:p:372-393

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Web page: http://www.elsevier.com/locate/pacfin

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Keywords: International corporate governance China Related party transactions Tunneling Propping;

References

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Citations

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Cited by:
  1. Jin-hui Luo & Di-fang Wan & Di Cai, 2012. "The private benefits of control in Chinese listed firms: Do cash flow rights always reduce controlling shareholders’ tunneling?," Asia Pacific Journal of Management, Springer, vol. 29(2), pages 499-518, June.
  2. Cheung, William & Lam, Keith S.K. & Tam, Lewis H.K., 2012. "Blockholding and market reactions to equity offerings in China," Pacific-Basin Finance Journal, Elsevier, vol. 20(3), pages 459-482.
  3. Lei, Adrian C.H. & Song, Frank M., 2011. "Connected transactions and firm value: Evidence from China-affiliated companies," Pacific-Basin Finance Journal, Elsevier, vol. 19(5), pages 470-490, November.
  4. Gao, Fox & Faff, Robert & Navissi, Farshid, 2012. "Corporate philanthropy: Insights from the 2008 Wenchuan Earthquake in China," Pacific-Basin Finance Journal, Elsevier, vol. 20(3), pages 363-377.
  5. Su, Zhong-qin & Fung, Hung-Gay & Huang, Deng-shi & Shen, Chung-Hua, 2014. "Cash dividends, expropriation, and political connections: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 260-272.
  6. Luo, Yongli & Fang, Fang & Esqueda, Omar A., 2012. "The overseas listing puzzle: Post-IPO performance of Chinese stocks and ADRs in the U.S. market," Journal of Multinational Financial Management, Elsevier, vol. 22(5), pages 193-211.
  7. Brisley, Neil & Bris, Arturo & Cabolis, Christos, 2011. "A theory of optimal expropriation, mergers and industry competition," Journal of Banking & Finance, Elsevier, vol. 35(4), pages 955-965, April.
  8. Huang, Weihua & Schwienbacher, Armin & Zhao, Shan, 2012. "When bank loans are bad news: Evidence from market reactions to loan announcements under the risk of expropriation," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(2), pages 233-252.

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