Why Does the Controlling Shareholder Transfer its Privatized Shares after Full Privatization? Evidence from China

In China, many controlling shareholders of fully privatized firms decide to transfer their privatized shares to third parties in the subsequent years after full privatization, which is defined as fully privatized shares transfer. Using Chinese fully privatized firms during the 2001 to 2013 period, this paper investigates the reasons why fully privatized shares transfer occurs in China. The results indicate that tunneling and minority shareholder protections are important induction factors of fully privatized shares transfer. Specifically, fully privatized firms conducting more severe tunneling in the current year and in the previous three years have a higher occurrence of fully privatized shares transfer, whereas firms adopting cumulative voting or having higher attendance at the general meeting of the shareholders are less likely to have fully privatized shares transfer occur. However, this paper lends limited support to the induction roles of politically connected senior managers in fully privatized shares transfer. This study’s findings highlight the importance of fully privatized shares transfer and thus offer fresh insight to policymakers that it is necessary to focus on the long and dynamic process of privatization, particularly the tunneling motives of introduced private owners.