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Corporate governance and tunneling: Empirical evidence from China

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  • Gao, Lei
  • Kling, Gerhard

Abstract

We analyze asset appropriation by principal shareholders in China and uncover the following relationships: (1) outsiders in the board of directors, audit without non-clean opinion, and dispersed ownership prevent operational tunneling; (2) belonging to a business group and issuing B or H share exacerbate asset appropriation. Institutional ownership does not prevent the embezzlement of assets and is endogenous, as investors select companies with good governance. Besides governance mechanisms, stock characteristics matter in that larger firms exhibit less tunneling, whereas highly leveraged firms experience the opposite. We find a decline of tunneling in 2001, which might be due to economic reforms.

Suggested Citation

  • Gao, Lei & Kling, Gerhard, 2008. "Corporate governance and tunneling: Empirical evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 16(5), pages 591-605, November.
  • Handle: RePEc:eee:pacfin:v:16:y:2008:i:5:p:591-605
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    References listed on IDEAS

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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, pages 499-518.
    2. Ma, Liangbo & Ma, Shiguang & Tian, Gary, 2013. "Political connections, founder-managers, and their impact on tunneling in China's listed firms," Pacific-Basin Finance Journal, Elsevier, pages 312-339.
    3. Chen, Shenglan & Lin, Bingxuan & Lu, Rui & Zhang, Ting, 2015. "Controlling shareholders’ incentives and executive pay-for-performance sensitivity: Evidence from the split share structure reform in China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 34(C), pages 147-160.
    4. Kling, Gerhard & Weitzel, Utz, 2011. "The internationalization of Chinese companies: Firm characteristics, industry effects and corporate governance," Research in International Business and Finance, Elsevier, pages 357-372.
    5. Seyed Sajad Ebrahimi Rad & Zaini Embong & Norman Mohd-Saleh & Romlah Jaffar, 2016. "Financial Information Quality and Investment Efficiency: Evidence from Malaysia," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, pages 129-151.
    6. repec:bla:acctfi:v:57:y:2017:i::p:69-100 is not listed on IDEAS
    7. repec:eee:reveco:v:49:y:2017:i:c:p:370-385 is not listed on IDEAS
    8. repec:bla:acctfi:v:57:y:2017:i:2:p:401-428 is not listed on IDEAS
    9. repec:eee:pacfin:v:46:y:2017:i:pa:p:124-140 is not listed on IDEAS
    10. Martua Eliakim Tambunan & Hermanto Siregar & Adler Haymans Manurung & Dominicus Savio Priyarsono, 2017. "Related Party Transactions and Firm Value in the Business Groups in the Indonesia Stock Exchange," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 7(3), pages 1-1.
    11. Hamelin, Anaïs, 2011. "Small business groups enhance performance and promote stability, not expropriation. Evidence from French SMEs," Journal of Banking & Finance, Elsevier, vol. 35(3), pages 613-626, March.
    12. He, Yan & Chiu, Yung-ho & Zhang, Bin, 2015. "The impact of corporate governance on state-owned and non-state-owned firms efficiency in China," The North American Journal of Economics and Finance, Elsevier, vol. 33(C), pages 252-277.
    13. Henry, Darren, 2010. "Agency costs, ownership structure and corporate governance compliance: A private contracting perspective," Pacific-Basin Finance Journal, Elsevier, vol. 18(1), pages 24-46, January.
    14. Huang, Hui & Shi, Xiaojun & Zhang, Shunming, 2011. "Counter-cyclical substitution between trade credit and bank credit," Journal of Banking & Finance, Elsevier, vol. 35(8), pages 1859-1878, August.
    15. Cheung, Yan-Leung & Jing, Lihua & Lu, Tong & Rau, P. Raghavendra & Stouraitis, Aris, 2009. "Tunneling and propping up: An analysis of related party transactions by Chinese listed companies," Pacific-Basin Finance Journal, Elsevier, vol. 17(3), pages 372-393, June.
    16. repec:spr:elmark:v:27:y:2017:i:3:d:10.1007_s12525-017-0254-5 is not listed on IDEAS
    17. Xingqiang Du, 2015. "Does Confucianism Reduce Minority Shareholder Expropriation? Evidence from China," Journal of Business Ethics, Springer, pages 661-716.
    18. Shan, Yuan George, 2015. "Value relevance, earnings management and corporate governance in China," Emerging Markets Review, Elsevier, vol. 23(C), pages 186-207.

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