Connected transactions and firm value: Evidence from China-affiliated companies
AbstractThis paper investigates tunneling through related-party transactions (RPT) using a unique dataset of listed Chinese companies in Hong Kong. While prior findings suggest that investors do not seem to systematically discount tunneling firms, we find that firm value (Tobin's q and market-to-book value) is significantly lower for firms undertaking potentially expropriating transactions. In addition, cumulative abnormal returns (CAR) are lower for RPTs with disclosure exemptions and are negatively related to some RPT types. Our results suggest that firms tunnel using RPTs with disclosure exemptions and that disclosure requirements matter for RPTs. These RPTs could signal firms' corporate-governance quality, as investors substantially discount firms that undertake potentially expropriating transactions.
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Bibliographic InfoArticle provided by Elsevier in its journal Pacific-Basin Finance Journal.
Volume (Year): 19 (2011)
Issue (Month): 5 (November)
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Web page: http://www.elsevier.com/locate/pacfin
Related party transaction Corporate governance Firm value Tunneling;
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