Is innovative activity a way to conduct tunneling behavior? Evidence from the seasoned equity offerings of Chinese firms

Chenyang Yu, Hanbing Sun and Changluan Fu

Finance Research Letters, 2022, vol. 46, issue PB

Abstract: Using a sample of Chinese firms, we prove that a firm's abnormal innovative activities during a seasoned equity offering (SEO) period is a way for its controlling stockholders to conduct tunneling. We find that a firm significantly improves its innovative intensity and performs more inefficient innovative activities in SEO years. These excessive innovative activities are restrained when the principal–agent problem is alleviated. Further research shows that catering to investors is a mechanism by which the controlling shareholders can implement innovative tunneling. Controlling shareholders can manipulate innovative activities before an SEO to increase a firm's stock price and reduce SEO financing costs.

Keywords: Tunneling; Innovative activity; Catering behavior (search for similar items in EconPapers)
JEL-codes: G30 G40 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:46:y:2022:i:pb:s1544612321004396

DOI: 10.1016/j.frl.2021.102452

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