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A good manager or a bad agent? Military CEOs and tunneling

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  • He, Jie
  • He, Luling
  • Chan, Kam C.

Abstract

The literature on tunneling generally suggests that controlling shareholders expropriate minority shareholders by assuming executives play an assistant role in the process. We explore whether the military background of CEOs makes a difference in tunneling. The findings suggest that firms with CEOs who have served in the military exhibit less tunneling than those whose CEOs did not have previous military experience. Additional analysis suggests that the negative relation between military CEOs and tunneling is more salient for firms with large shareholding controlling shareholders, without seasoned equity offering (SEO) plans, audited by non-Big Four accounting firms, or have fewer analysts following them. Interestingly, we find that, by restraining a controlling shareholder’s tunneling, a military CEO firm has better firm value, lower perk consumption, and more positive media coverage. However, the military CEO also pays the price of being more likely to get dismissal than a non-military CEO. Hence, our evidence suggests that CEOs, especially those with military background, may not always follow controlling shareholders to expropriate minority shareholders.

Suggested Citation

  • He, Jie & He, Luling & Chan, Kam C., 2023. "A good manager or a bad agent? Military CEOs and tunneling," Research in International Business and Finance, Elsevier, vol. 66(C).
    • Handle: RePEc:eee:riibaf:v:66:y:2023:i:c:s0275531923001691
    DOI: 10.1016/j.ribaf.2023.102043
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    References listed on IDEAS

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    1. Jebran, Khalil & Chen, Shihua & Tauni, Muhammad Zubair, 2019. "Principal-principal conflicts and corporate cash holdings: Evidence from China," Research in International Business and Finance, Elsevier, vol. 49(C), pages 55-70.
    2. Jiang, Guohua & Lee, Charles M.C. & Yue, Heng, 2010. "Tunneling through intercorporate loans: The China experience," Journal of Financial Economics, Elsevier, vol. 98(1), pages 1-20, October.
    3. Gao, Kaijuan & Shen, Yiran & Chan, Kam C., 2021. "Does analyst following restrain tunneling? Evidence from brokerage closures and mergers," Finance Research Letters, Elsevier, vol. 41(C).
    4. Gong, Min & Wang, Yanan & Yang, Xiandong, 2021. "Do independent directors restrain controlling shareholders’ tunneling? Evidence from a natural experiment in China," Economic Modelling, Elsevier, vol. 94(C), pages 548-559.
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    Cited by:

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    2. Qian, Xianhang & Liu, Yewei & Li, Xinyu, 2025. "Concentrated customers: A blessing or a curse for tunneling prevention?," Journal of International Money and Finance, Elsevier, vol. 156(C).

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